Biglari Holdings Inc. Annual Report 2018

FY2018 Annual Report · Biglari Holdings Inc.

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Dear Shareholders of Biglari Holdings Inc.:

Biglari Holdings is a collection of businesses. It resembles a museum — not of art but of
businesses. Rather than collecting Monets, we collect money from productive assets. Cash is cash
regardless of its source, whether it originates from a restaurant chain or from an insurance company.
This cash-generating philosophy, measured on the basis of intrinsic value, renders all businesses as
economic equivalents.1

As a modern corporation Biglari Holdings is unorthodox, for it is both highly unified and
highly decentralized. Its group of operationally independent companies — Steak n Shake, Western
Sizzlin, First Guard, and Maxim — is held together by Biglari Holdings’ ownership. The
management of business units is decentralized, with financial authority fully concentrated under my
control. As the sole capital allocator, I employ neither analysts nor advisors. Because of our
corporate architecture, we are able to administer our enterprise of approximately 19,000 employees
with a staff of 5 at corporate headquarters.

Biglari Holdings’ structure improves capital allocation and empowers a far-flung patchwork
of businesses. And we can grow faster through acquisitions than we would by simply expanding
upon our existing base. For a corporation devoted to acquisitions, however, it might seem unusual
that we have not made a single purchase in the past five years. Then again, we have observed that
many corporate acquirers confuse means and ends, namely by fixating on making acquisitions rather
than on making money from acquisitions. We make acquisitions for the sole purpose of advancing
per-share wealth.

Yet full ownership is not the only path to prosperity. Partial ownership of businesses via
the stock market often offers uncommon value vis-à-vis negotiated transactions for entire businesses.
We think of stocks as fractional ownership in businesses. Because of our attitude toward equity
markets, viewing stocks from a businessman’s perspective, our range of investment options is
wide and varied. Plainly, we view our corporation as a vehicle for deploying capital in high-return
opportunities.

One of our competitive advantages is maximum flexibility concerning capital allocation —
the ability to allocate in any category of investments. We deploy capital on the basis of value
unimpeded by tradition or imperative. A common corporate imperative is to reinvest the money
where it was earned, which may be less than ideal — akin to a buggy-whip manufacturer reinvesting
in its operations after the advent of the automobile. Our opportunistic expansion into a disparate
collection of controlled and noncontrolled businesses has led us to build Biglari Holdings into a
multifaceted enterprise. Over the last decade, Biglari Holdings’ cumulative pre-tax earnings
(including profits from investments) totaled $421.4 million. In the process, we grew cash and
investments from $1.6 million to $802.0 million.

1 Intrinsic value is measured by taking all future cash flows into and out of the business and discounting the net

figures at an appropriate interest rate.

Here is the year-by-year development of cash and investments:

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

(In Millions)

Cash and Equivalents $

Marketable Securities

48.6 $ 58.6 $ 75.8 $ 56.5 $ 124.3 $ 94.6 $
38.3

23.8

26.8

27.7

21.5

85.5

269.9

115.3

60.4 $

99.0 $

47.6 $

51.4 $

1.6

The Lion Fund

715.1

925.3

972.7

734.7

620.8

455.3

48.3

38.5

32.5

38.6

3.0

–

Total Investments

$ 802.0

$ 1,011.6

$ 1,075.3

$ 815.0

$ 766.6

$ 635.4 $ 378.6 $ 252.8 $ 118.7 $

54.4 $

1.6

Notes: The years 2015 through 2018 were calendar years. The years 2009 through 2014 were fiscal years that ended on the last Wednesday in September.

The 2008 data is for the fiscal quarter ending on July 2, 2008, the nearest fiscal quarter prior to present management assuming control.

Biglari Holdings’ investments in The Lion Fund, L.P. and The Lion Fund II, L.P. do not include other limited partners’ interests. Both partnerships
throughout this letter will be referenced as The Lion Fund.

The meteoric rise in investments, combined with no debt at the parent company, has given
Biglari Holdings a capital structure advantage. Financial strength is the sine qua non in depressed
financial markets, not only to avoid peril but to preserve the financial flexibility needed for
acquisitions and investments. Lucrative opportunities are often hidden in adversity, requiring a
mixture of cash, courage, and competence to seize them. Holding ample financial resources positions
us to be aggressive when others are mired in apprehension.

Phil Cooley, Vice Chairman of Biglari Holdings, and I have no desire to surrender our capital
strength in order to stretch for higher returns. From our founding we have endeavored to take risk of
ruin to a probability of zero point zero, zero, zero.

To further enhance our financial base, Biglari Holdings is seeking to acquire additional
insurance companies. Unquestionably, purchasing a fine insurance company is far from easy, mainly
because it is a CEO-intensive business. But Phil and I like the prospects of the insurance business
and would expect to enlarge our domain so long as we associate with skilled, honorable operators.

Our model of an ideal acquisition is First Guard: an exceptional business run by an
exceptional operator. With First Guard we obtained a gem of a company along with its creator, CEO
Edmund B. Campbell, III. There is yet another benefit: The Ed Campbells of the world are owner-
managers who cannot be recruited away. For starters, Ed has no financial need for employment, as
his joy comes from the love of achievement. The transaction was beneficial for him because it
diversified his family’s holdings and simplified his estate planning. Plus, he continues to run the
business as if he had never sold it. We were spoiled in the First Guard acquisition — and we wish to
keep getting spoiled.

To be sure, there are not many First Guards in the insurance business or, for that matter, in
business generally. But we have a decided edge in attracting such business masterpieces and their
master-managers: Becoming a constituent company of Biglari Holdings is nearly the same as an
owner-manager running his or her own show.

We offer what most business buyers — strategic or financial — do not or cannot offer:
continuity and permanency. Strategic buyers value integration based on the prospect of capturing

“synergies” by combining the acquiree’s operations with their own existing business. We, by
contrast, place value on non-integration. The cost is a lack of operational synergy, an overrated
concept; conversely, non-integration is underrated. Then there are the private equity firms, exit-
driven, which would most likely saddle the company with considerable debt. Here again, we are
buying with no such ruinous intentions; rather, we undertake business acquisitions with the
expectation of holding them in perpetuity. Because of our idiosyncratic approach, we are the right fit
for many entrepreneurs.

After nearly five years of owning First Guard, we invite potential sellers to review our
dealings. To judge how one will behave in the future, it is logical to evaluate how one has behaved in
the past. After all, a reputation is earned, not bought.

Our corporate performance is the result of cash generated by our operating subsidiaries along
with our capital allocation work, which according to our criterion must outdo the S&P 500 Index.
Over the past decade we believe Biglari Holdings’ gain in per-share intrinsic value has far
outstripped the S&P 500. Two components are critical in assessing the company’s progress: its
investments and its operating businesses.

Investments

By the end of 2018, total investments (cash, marketable securities, and Biglari Holdings’
investments in The Lion Fund) amounted to $802.0 million; close to half of that sum came from
investment gains. Our investment activities are largely conducted through The Lion Fund, whose
origin dates from the year 2000 when I founded it.

To achieve superior results in marketable securities, our reasoning must be superior. Our
action is deliberate and infrequent, for we adhere to long-term, selective investing. By conventional
standards our investment style — with long stretches of inaction — is anachronistic. We follow
neither the advice nor the actions of so-called experts, or even actual experts. Wall Street, in the
business of selling, needs activity, but we as owners of capital act only when it is sensible. Because
attractive opportunities are rare and ephemeral, we make relatively few investments. It is
incontrovertible that many large fortunes have accumulated through the concentration of capital in a
single corporation. But it is also an approach in which ignorance spawns immense losses; thus,
knowledge is the best shield against permanent loss of capital. A superior investment offers profit
potential without the assumption of commensurate risk.

For an investor to attain sizable profits in common stocks, two constituent factors are critical:
(1) knowing a company’s long-term business prospects; and (2) recognizing a divergence between
investor perception and business reality. Only when we hold a capital-allocation edge, with
confidence in the correctness of our judgment, do we concentrate heavily in shares of a corporation.
In adopting a strategy favoring concentration, we will ipso facto experience greater volatility, which
we handle with equanimity. Why should we suffer anguish from quotational changes caused by the
misjudgment of others? Admittedly, most investors would not be temperamentally equipped to
follow our approach. We are comfortable on such an investment journey. Despite the fact that the
road we travel is rather bumpy, it is also a road that can lead to an outstanding destination.

At year-end, The Lion Fund’s largest common stock holding was 4,322,218 shares of
Cracker Barrel Old Country Store, Inc. During 2018 we decreased our holding in Cracker Barrel
from 19.7% to 18.0% of the company’s outstanding shares. We originally purchased 4,737,794

shares of Cracker Barrel for $241.1 million from May 2011 through December 2012, with a dollar-
weighted purchase date of December 2011. Here are some of Cracker Barrel’s figures for 2011
through 2018:

Fiscal Year*

Earnings
per Share

Dividends
per Share

2011 ........................

$ 3.70

.88

2012 (53 weeks) .....

2013 ........................

2014 ........................

2015 ........................

2016 ........................

2017 ........................

4.47

4.95

5.55

6.85

7.91

8.40

2018 (53 weeks) .....

10.31

*Fiscal years ended on the Friday nearest July 31.

1.15

2.25

3.25

7.10

7.70

8.15

8.60

At last year’s dividend of $8.60 per share, the pre-tax yield is 16.9% on our average cost per
share of $50.89. Along the way we have collected a total of $39.18 per share in dividends. By year-
end 2018, we received proceeds of $74.3 million from the sale of stock, $185.6 million in dividends,
plus held a remaining stake of $690.9 million. In sum, over a seven-year period, our investment in
Cracker Barrel of $241.1 million turned into $950.8 million in value.

At year-end 2018, Biglari Holdings had a $715.1 million investment in The Lion Fund
partnerships, with net unrealized appreciation of $329.8 million. Biglari Holdings’ investment in the
partnerships excludes deferred income taxes on unrealized gains. As is evident in Biglari Holdings’
financial statements, we would owe taxes of $92.7 million if the partnerships liquidated their
holdings at year-end values. The tax liability, we regard, is tantamount to an interest-free loan from
the government for the company’s benefit. We are gaining the upside of leverage without its
associated downside. Hence, we control $92.7 million more in assets funded by liabilities carrying no
cost, no covenants, and no maturity date — except the loan must be paid as assets are sold.

Operating Businesses

Biglari Holdings has four major controlled businesses, each 100%-owned: Steak n Shake,
Western Sizzlin, First Guard, and Maxim. Over the long term, each business must be a moneymaker.
Our preference is to plow the profits into an unrelated collection of other businesses, continually
adding streams of cash with each acquisition.

Because we are driven by intrinsic value, not by an income statement, in our view our
reported earnings do not represent a meaningful measure of our economic progress. Nevertheless, as
a first step in evaluating Biglari Holdings’ performance, the following table delineates an
unconventional breakdown of our earnings in a form that Phil and I find more useful than the
conventional one in our consolidated statements.

(In 000’s)

2018

2017

Operating Earnings:

Steak n Shake .......................................................
Western Sizzlin ....................................................
First Guard ...........................................................

Maxim ..................................................................

Corporate and Other .............................................

Operating Earnings Before Interest and Taxes ........
Interest Expense .......................................................
Income Taxes ...........................................................

Net Operating Earnings ............................................
The Lion Fund (net of taxes) ....................................

(10,657)
2,046
6,215

1,068

(10,651)

(11,979)
11,677
(9,808)

(13,848)
33,240

431
1,860
4,770

(439)

(15,437)

(8,815)
11,040
(58,846)1
38,991
11,080

Total Earnings ..........................................................

19,392

$ 50,071

(1) Includes $53.5 million in income tax benefit derived from a reduction in deferred tax liability related to unrealized gains on
marketable securities.

Our reported earnings are materially affected by the volatility in the carrying value of The
Lion Fund. Yet we are indifferent to variability in reported earnings triggered by the accounting of
the investment partnerships. To correct the resultant distortions in our earnings figures, we simply
separate changes in the partnerships’ values from those in the operating businesses when we report
Biglari Holdings’ earnings.

Last year was a doozy. Our net operating loss of $13.8 million in 2018 compares with
earnings of $39.0 million in 2017. We have been consistent in our view that such annual figures
provide an incomplete evaluation of our performance. Although we do not disregard yearly figures,
neither do we regard them as vital. We measure business progress not on a single year’s profits or
cash flows but rather on the present value of future cash flows. As a corollary, the logical approach
for shareholders to take when appraising Biglari Holdings is to review the performance of each
operating subsidiary.

Restaurant Operations

Our restaurant operations consist of Steak n Shake and Western Sizzlin for a combined 685
restaurants. However, the business models of each differ. Steak n Shake primarily operates
restaurants, totaling 626 locations, of which 413 are company operated. Western Sizzlin, on the other
hand, primarily franchises restaurants, with 59 units — all but 4 are franchisee-run.

Western Sizzlin Corporation

Ever since Phil and I took control of Western Sizzlin in 2006, we have been wringing cash
from the business and channeling it into other investments with potential for solid gains. From the
outset we knew Western Sizzlin was not going to knock the cover off the ball, but by inaugurating a
cash-return approach, we turned it into a cash-generating machine. In March 2010, Biglari Holdings

acquired Western Sizzlin for a net purchase price of $21.7 million. Since then, Western Sizzlin’s
cash distributions to Biglari Holdings have totaled $23.1 million, which we have redeployed in more
gainful opportunities. Hats off to the Western Sizzlin staff, who continue to do an outstanding job
creating a steady stream of cash for Biglari Holdings.

Steak n Shake Inc.

From 1934 through 2008, the cumulative pre-tax earnings of Steak n Shake were about $480
million — but those earnings were squandered because capital was reinvested at unsatisfactory rates
of return. In fact, when present management took over on August 5, 2008, Steak n Shake was losing
$100,000 per day. We were able to turn the business around — details of which are covered in prior
letters — and by the end of 2009 we were generating $100,000 per day. From 2009 through 2018,
Steak n Shake’s aggregate pre-tax earnings were about $185 million, and, better yet, these earnings
translated into an even greater sum of distributable cash.

So much for the good news: The decade of control under current management ended much
like it started — with heavy losses. While the company’s performance in 2018 was a significant
disappointment, its ten-year performance generated about $300 million of cash that was dispatched to
Biglari Holdings, fueling the holding company’s growth.

Here is a review of Steak n Shake’s results since 2008:

(Dollars in 000’s)

Net Revenue

Operating
Earnings

Number of
Customers

Same-Store
Sales

2008 ...................... $ 610,061

$ (30,754)

85,000,000

(7.1%)

2009 (53 weeks) ....

628,726

11,473

91,000,000

2010 ......................

662,891

38,316

101,000,000

2011 ......................

689,325

41,247

105,000,000

2012 ...................... 718,010

45,622

110,000,000

2013 ......................

737,090

28,376

112,000,000

2014 ......................

765,600

26,494

114,000,000

2015 ......................

805,771

39,749

118,000,000

2016 ......................

804,423

34,717

116,000,000

2017 ......................
2018 ......................

792,827
760,565

431

111,000,000
(10,657) 103,000,000

4.1%

7.5%

4.2%

3.8%

2.2%

2.9%

3.6%

(0.4%)

(1.8%)
(5.1%)

Number of
Company
Stores at
Year-End

423

412

413

414

415

416

417

415
413

Operating
Earnings
Per Store

$ (72.7)

27.8

93.0

99.9

110.2

68.4

63.7

95.3

83.3

1.0
(25.8)

Notes: Customer count is only for company-operated units. The years 2015 through 2018 were calendar years. The years 2008 through 2014

were fiscal years that ended on the last Wednesday in September.

Amid the Great Recession of 2008, we repositioned Steak n Shake from a dying brand in the
casual-dining segment of the industry into one succeeding in the quick-serve restaurant business. For
seven consecutive years, we registered industry-leading gains in customer traffic. But for the past

three years, we have been in a decline, with same-store sales below the average for the industry. The
work we left undone has led us in recent years to be a market laggard.

Ever since we took control of Steak n Shake, we have been steadfast in our formula for
success: providing the highest quality burgers and shakes at the lowest possible profit per customer
from an ever-increasing number of customers. Despite our unwavering dedication to product quality
and low prices, we erroneously stayed with equipment and kitchen design that was ill-suited for
volume production. The effect has been high-cost, labor-intensive slow service. We failed customers
by not being fast and friendly.

Whereas we adopted Henry Ford’s pricing philosophy — lower price, higher volume — we
failed to implement his highly efficient assembly line methods. To be a market leader in the fast food
business, we should have paid greater heed to becoming, well, fast. We are in the process of
addressing this misstep. To do so, we are overhauling and streamlining production — that is,
developing a sophisticated operating and delivery system — in order to gain volume through speed.
This principle can be summed up in the dictum of Benjamin Franklin: “Time is money.”

Over the last decade, from fiscal 2008 through 2018, drive-thru and take-out revenue
increased by 51.5%, which now represents approximately half of our overall revenue. While in our
first decade of control we employed an aggressive pricing formula, we enter our second decade
determined
inviolable.
Consequently, we are developing a tailor-made system designed to speed up service, deliver
consistency, and reduce labor while safeguarding our customers’ love affair with the craftsmanship
behind our handmade, homemade creations. Our aim is to change not our products but the process by
which we create our delicious Steakburgers and milkshakes.

implement advanced production

techniques. No old method

But more important than the price of our product or the speed of our service is the way
customers are treated. As Sam Walton aptly put it, “The customer is our boss.” Unquestionably, the
single most important person to ensure that customers are served in a caring, hospitable manner is the
leader of the restaurant. No amount of technology or equipment will create a winning restaurant
chain; it takes the right leadership in every restaurant unit. We must be ardent not only about the
quality of the product but also the quality of the people who operate Steak n Shake restaurants. To
achieve our goal, we are building a culture of ownership at the unit level. For operators to think and
act like owners, we believe they must be owners. In other words, we are becoming a company of
owners.

In order to attract such owner-operators, we are franchising all company-operated units. After
all, franchising is the epitome of entrepreneurship. But there is a caveat: We are not interested in
absentee owners; rather, we seek entrepreneurs with a consummate commitment to the business. In
doing so, we aim to harness the power of enterprising operators.

Because talent, not money, is in short supply, we are building a franchise network on the
same principle that built America: equal opportunity. In 1931, James Truslow Adams coined the term
“the American dream” in The Epic of America: “the American dream, that dream of a land in which
life should be better and richer and fuller for every man, with opportunity for each according to his
ability or achievement…. It is not a dream of motor cars and high wages merely, but a dream of
social order in which each man and each woman shall be able to attain to the fullest stature of which

they are innately capable, and be recognized by others for what they are, regardless of the fortuitous
circumstances of birth or position.”

Every man and woman is entitled to pursue the American dream. Because we favor the ideal
of opportunity for all, we have designed a franchise system in which those who are passionate about
serving others, and who wish to go into business for themselves but not by themselves, can fulfill the
dream of being an owner — and with it, the prospect of becoming an American success story. Our
system is designed for those long on ability but short on capital.

Our franchise agreement stipulates that the franchisee make an upfront investment totaling
$10,000, a modest figure for a franchise opportunity. Because of our significant investment in the
business, including the construction of the restaurant and its equipment, we assess a fee of up to 15%
of sales as well as 50% of profits. Under our arrangement, a franchise partner is able to earn
considerable sums, which is the way we want it. Our thinking behind such a lucrative arrangement is
simple: The best way to create wealth for ourselves is to first create wealth for our franchise partners.

Potential franchisees are carefully screened based on entrepreneurial attitude and ability, but
they become franchise partners based on achievement. Each must demonstrate exemplary skills
embodying a customer-focused approach that meets the gold standard in service. Franchise partners
are required to be hands-on operators. We limit a franchisee to a single location, based on the belief
that focus, along with passion, determination, and persistence, will translate into excellent employee
and customer satisfaction.

We will become a federation of 400 or so independent entities connected by a web of
franchise partnerships. The new Steak n Shake system — based on an entrepreneurial culture — will
place trust in those deserving of it. Our owner-operator model empowers individuals to be self-
reliant, self-directed, and self-motivated. Clearly, the tenets of our operating philosophy — quality,
service, cleanliness, and price — are standards to which we require allegiance. By viewing franchise
partners as equal partners, we expect to build harmonious relationships and achieve system-wide
consistency.

We currently have several franchise partners, and in my estimation it will take approximately
three years to complete the transition. The essence of our program is to simultaneously achieve
standardization while unleashing the entrepreneurial spirit of the operators. We expect the
combination to reinvent Steak n Shake as the best quick-serve restaurant company in the premium
burger segment of the industry.

Therefore, we now offer two franchise arrangements: (1) franchise partner, outlined above;

and (2) traditional franchisee, which is our means of growing unit count.

To achieve unit growth without a major capital outlay, we employ a traditional franchise-
based model, a noncapital-intensive strategy that generates high-return, annuity-like cash flows.
Here, the major funding necessary to expand the brand is borne by third parties. Traditional
franchising is a business that not only produces cash instead of consuming it but concomitantly
reduces operating risk.

Beginning in 2010, we invested substantial sums to advance our traditional franchise

business. Displayed below are the number of franchise units and the revenue derived from them:

(Dollars in 000’s)

Franchise
Royalties and
Other Fees
(A)

Franchise
Marketing
Contributions
(B)

Franchise
Revenue
(A) + (B)

Number of
Franchise
Units

2010* ..............

4,316

$ 6,516

$ 10,832

2018 ................

18,828

9,675

28,503

Gain ................

$ 14,512

$ 3,159

$ 17,671

213

142

*Franchise royalties and other fees have been adjusted to reflect the new accounting standard.

A new accounting rule in Generally Accepted Accounting Principles alters franchise revenue
recognition in two ways: (1) franchise marketing contributions are now reflected in our revenue; and
(2) initial franchise fees are now amortized over their term (typically 20 years) rather than recognized
as franchise restaurants are opened. Neither change affects cash flow. As a consequence, Phil and I
disregard the franchise marketing contributions because the vast majority of these are advertising
dollars spent on behalf of the franchisees, as required by our contractual obligations.

Although Steak n Shake was founded in 1934 in Normal, Illinois, the first franchise unit
opened in 1939. From 1939 to 2010 Steak n Shake grew by an average of one franchise unit per year.
Over the last eight years, we have added twice the number of franchise units — 142 to be exact — as
had been built in the preceding 71 years.

For the first 78 years, all our restaurants had table service. However, in 2012, we introduced a
counter-service-only model, designing and developing our concepts in a modular way that embraced
flexibility and made it adaptable to various venues. Because of the modularity of Steak n Shake’s
design, we are now growing in universities, casinos, airports, gas stations, shopping centers, and
other arenas. We now have 87 franchise units with counter service only, a figure that includes
international operations, which commenced in 2013. After much experimentation, we have
concentrated our international resources in France. Steak n Shake occupies a niche in the French
market with 22 locations.

For the period 2011 through 2015, the franchise business operated at a loss but intrinsic value
advanced. We allocated capital to develop the franchising business with the expectation of creating
greater dollar value for each dollar spent. Our traditional franchise business — domestic and
international combined — is now a prodigious cash generator. In 2018, franchise operations posted a
record profit of $8.0 million. Furthermore, because international operations reached scale toward the
end of 2018, thereby turning the flow of red ink to black, we expect our franchise business to
generate even higher profits in 2019.

First Guard Insurance Company

As you may have gathered by now, I am an admirer of Ed Campbell, III. It was on March 19,
2014, that we consummated the purchase of First Guard Insurance Company and its affiliated
agency. But earlier that month, while visiting Ed in Venice, Florida, I met his father, the singular
Ed Campbell, Jr., whom I call Junior. He told me that I would be pleased entering into business with
his son Eddie, as he calls Ed III. Junior was not only dead right but — as a testament to the Campbell
family character — Ed way over-delivered. Shareholders gained a terrific business and I gained a
friend. The experience with First Guard and the Campbell family has been a true pleasure.

First Guard is a direct underwriter of commercial truck insurance — with no agent between
the insurer and the insured — rendering the company a low-cost operator with a sustainable
competitive advantage. Ed is an exemplar in the insurance world. Backing up that assertion, First
Guard has achieved underwriting profitability for 22 consecutive years, placing it near the top of a
rarified group of property and casualty companies.

Shown below are the results for the last five years. Note that 2014 is presented as a full year,
that is, as if we had owned the company throughout the year rather than from the date of acquisition:

(Dollars in 000’s)

Premiums
Earned

Underwriting
Profit

Combined
Ratio*

2014 .............................

$ 10,757

$ 2,293

2015 .............................

16,719

2016 .............................

22,397

2017 .............................

24,242

2018 .............................

26,465

3,357

4,913

4,518

5,634

78.7

79.9

78.1

81.4

78.7

*The combined ratio represents losses incurred plus expenses as compared to revenue from premiums.
A combined ratio below 100 percent denotes an underwriting profit, whereas a ratio above 100 percent denotes
a loss.

First Guard set an earnings record in 2018. Premium volume increased by 9.2%, but more
importantly, an underwriting profit of $5.6 million was generated on $26.5 million of earned
premiums. First Guard has continued to produce a first-class profit because Ed and his team continue
to run a first-class operation.

First Guard’s investment income has benefited from a buildup of invested assets alongside
higher yields on its holdings in U.S. Treasury securities. Our policy has been to retain all earnings
within our insurance company for additional capital strength. We have arranged our affairs to meet
contractual commitments under any scenario.

First Guard’s 2018 pre-tax profit of $6.2 million was roughly three times what the company
earned in the year preceding our acquisition. With the aid of an able, experienced, profit-oriented

team of executives, Ed created considerable value after he sold the company. Phil and I did not teach
the team any skills — the company arrived with them — but rather, the parent company’s financial
strength provided the group the ability to retain greater levels of originated premiums and thereby
generate greater profits. Owning First Guard has imparted substantial knowledge about the insurance
business to Phil and me, which we expect will greatly benefit us in future insurance acquisitions.

Maxim Inc.

In 2018, Maxim earned $1.1 million pre-tax, its first seven-figure profit in over a decade.

When we purchased Maxim in February 2014, the company was nearing its demise. Its high
fixed cost, inherent in the magazine business, was destined to drain cash unremittingly. But we did
not purchase Maxim to be in the magazine business per se; rather, we purchased an underexploited
brand with the intention of generating nonmagazine revenue, notably through licensing, a cash-
generating business related to consumer products, services, and events. We found safety in a bargain
purchase price along with the opportunity to convert a magazine company into a profitable business
built around the Maxim name.

We have addressed the cost structure of the traditional side of the business, print publishing,
while creating a sophisticated periodical that is aspirational and inspirational. We greatly amplified
the quality of paper, photography, and content. To augment Maxim’s relevance, we have also
become a reader-focused rather than an advertiser-focused publication. In sum, we have repositioned
the brand with a luxury lifestyle magazine and an online platform that together provide a launching
pad for high-profit lines of business.

Our pathway to profit emanated from the development of a new, sustainable business model.
The ability to build profits will rest mainly on our licensing business. Because the nature of the
licensing business is predicated on projects that materialize with irregularity, near-term results are
inevitably indeterminate. Nevertheless, Maxim is now a solidly profitable company.

Shareholder Communications

My communications with shareholders are generally limited to the annual report and the
annual meeting. We do not provide earnings guidance, nor do we hold quarterly conference calls
because neither activity would be consistent with our ethos and style of management. Moreover, we
wish to provide all shareholders simultaneously with the same information. One-on-one meetings are
neither productive nor practicable.

Past Chairman’s Letters are also essential to help you gain more knowledge of our business.
These letters can be easily accessed on our website, biglariholdings.com. To keep you abreast of the
company, we will issue press releases concerning 2019 quarterly results after the market closes on
May 3, August 2, and November 1. The 2019 annual report will be posted on our website on
Saturday, February 22, 2020.

Our annual meeting will be held at 1:00 pm on Thursday, April 25, 2019 in New York City at
the St. Regis Hotel. The meeting is just for our owners; to attend, you must own shares and show
proof thereof. As an owner, you may bring up to two pre-registered guests with you. The bulk of the

gathering is a question-and-answer session that usually lasts about five hours, covering myriad topics
on shareholders’ minds. Phil and I look forward to spending that time answering your questions. We
find the annual meeting to be an effective channel to communicate with you.

* * *

As an entrepreneurial enterprise we hold a disdain for bureaucracy. Our unorthodox approach
stems from thinking and acting independently in pursuit of value creation. What interests us is
profits, not popularity. Profit-making opportunities emerge when fear, folly, or financial trouble
dominate the scene. Instead of following trends written on the wind, we rely on our judgment,
fortified by experience, to shape Biglari Holdings for superior returns on capital.

Sardar Biglari
Chairman of the Board

February 22, 2019

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended December 31, 2018

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from ____ to ____

Commission file number 001-38477

BIGLARI HOLDINGS INC.

(Exact name of registrant as specified in its charter)

INDIANA
(State or other jurisdiction of incorporation)

17802 IH 10 West, Suite 400
San Antonio, Texas
(Address of principal executive offices)

82-3784946
(I.R.S. Employer Identification No.)

78257
(Zip Code)

(210) 344-3400
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Class A Common Stock, no par value
Class B Common Stock, no par value

Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes

No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes

No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-
K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and an “emerging growth company” in Rule
12b-2 of the Exchange Act. (Check one):

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2018 was approximately $257,082,107.

Number of shares of common stock outstanding as of February 18, 2019:

Class A common stock –
Class B common stock –

206,864
2,068,640

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement to be filed for its 2019 Annual Meeting of Shareholders are incorporated by reference into Part III of this
Form 10-K.

Table of Contents

Part I

Page No.

Item 1. Business ...........................................................................................................................................................
Item 1A. Risk Factors ....................................................................................................................................................
Item 1B. Unresolved Staff Comments ..........................................................................................................................
Properties ........................................................................................................................................................
Item 2.
Item 3. Legal Proceedings ...........................................................................................................................................
Item 4. Mine Safety Disclosures ..................................................................................................................................

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17
22
23
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24

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities .............................................................................................................................................
Selected Financial Data ..................................................................................................................................
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ...................
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ....................................................................
Financial Statements and Supplementary Data ...........................................................................................
Item 8.
Consolidated Balance Sheets .........................................................................................................................
Consolidated Statements of Earnings ............................................................................................................
Consolidated Statements of Comprehensive Income ....................................................................................
Consolidated Statements of Cash Flows .......................................................................................................
Consolidated Statements of Changes in Shareholders’ Equity ......................................................................
Notes to Consolidated Financial Statements .................................................................................................
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..................
Item 9A. Controls and Procedures ...............................................................................................................................
Item 9B. Other Information ..........................................................................................................................................

24
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38
40
41
41
42
43
44
67
67
67

Part III

Item 10. Directors, Executive Officers and Corporate Governance .........................................................................
Item 11. Executive Compensation ................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters .........................................................................................................................................................
Item 13. Certain Relationships and Related Transactions, and Director Independence ........................................
Item 14. Principal Accountant Fees and Services .......................................................................................................

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67

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67

Signatures ...........................................................................................................................................................................

Item 1.

Business

Part I

Biglari Holdings Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities, including
media, property and casualty insurance, and restaurants. The Company’s largest operating subsidiaries are involved in the
franchising and operating of restaurants. Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive
Officer of Biglari Holdings and its major operating subsidiaries. The Company’s long-term objective is to maximize per-share
intrinsic value. All major operating, investment, and capital allocation decisions are made for the Company and its subsidiaries by
Mr. Biglari.

As of December 31, 2018, Mr. Biglari’s beneficial ownership was approximately 56.9% of the Company’s outstanding Class A
common stock and 54.3% of the Company’s outstanding Class B common stock.

Issuance of Dual Class Common Stock
On March 5, 2018, the Company entered into an agreement with its predecessor registrant, now known as OBH Inc. (the
“Predecessor”), and BH Merger Company, a wholly owned subsidiary of the Company. Pursuant to the agreement on April 30,
2018, BH Merger Company merged with and into the Predecessor, with the Predecessor continuing as the surviving corporation
and a wholly owned subsidiary of the Company.

As a result of the April 30, 2018 transaction, the Company has two classes of common stock, designated Class A common stock
and Class B common stock. A share of Class B common stock has economic rights equivalent to 1/5th of a share of Class A common
stock; however, Class B common stock has no voting rights. Upon completion of the transaction, every ten (10) shares of common
stock outstanding on April 30, 2018 converted into (i) ten (10) shares of Class B common stock and (ii) one (1) share of Class A
common stock.

Since May 1, 2018, the shares of the Company’s Class A common stock have traded on the New York Stock Exchange (“NYSE”)
under the ticker symbol “BH.A” and the shares of the Company’s Class B common stock have traded on the NYSE under the
ticker symbol “BH”.

Restaurant Operations
The Company’s restaurant operations are conducted through two subsidiaries: Steak n Shake Inc. (“Steak n Shake”) and Western
Sizzlin Corporation (“Western Sizzlin”). As of December 31, 2018, Steak n Shake had 413 company-operated restaurants and 213
franchise units. Western Sizzlin had 4 company-operated restaurants and 55 franchise units.

Steak n Shake is engaged in the ownership, operation, and franchising of Steak n Shake restaurants. Founded in 1934 in Normal,
Illinois, Steak n Shake is a classic American brand serving premium burgers and milkshakes. Steak n Shake is headquartered in
Indianapolis, Indiana.

Western Sizzlin is engaged primarily in the franchising of restaurants. Founded in 1962 in Augusta, Georgia, Western Sizzlin
offers signature steak dishes as well as other classic American menu items. Western Sizzlin also operates two other concepts: Great
American Steak & Buffet, and Wood Grill Buffet. Western Sizzlin is headquartered in Roanoke, Virginia.

Operations
A typical restaurant’s management team consists of a general manager, a restaurant manager and other managers depending on the
operating complexity and sales volume of the restaurant. Each restaurant’s general manager has primary responsibility for the day-
to-day operations of his or her unit. Restaurant operations obtain food products and supplies from independent national distributors.
Purchases are centrally negotiated to ensure uniformity in product quality.

Franchising
Restaurant operations’ franchising program extends the brands to areas in which there are no current development plans for
company stores. The expansion plans include seeking qualified new franchisees and expanding relationships with current
franchisees. Restaurant operations typically seek franchisees with both the financial resources necessary to fund successful
development and significant experience in the restaurant/retail business. Both restaurant chains assist franchisees with the
development and ongoing operation of their restaurants. In addition, personnel assist franchisees with site selection, approve
restaurant sites, and provide prototype plans, construction support and specifications. Restaurant operations’ staff provides both
on-site and off-site instruction to franchise restaurant management and associates.

In addition to the traditional franchise arrangements described above, Steak n Shake initiated a new franchise partner program
during 2018 to transition company-operated restaurants to such franchisees. The franchise agreement stipulates that the franchisee
make an upfront investment totaling $10,000. Steak n Shake, as the franchisor, assesses a fee of up to 15% of sales as well as 50%
of profits. Potential franchisees are screened based on entrepreneurial attitude and ability, but they become franchise partners based
on achievement. Each must meet the gold standard in service. Franchise partners are required to be hands-on operators. We limit
a franchisee to a single location.

International
We have a corporate office in Monaco and an international organization with personnel in various functions to support our
international business. As of December 31, 2018, we operated three company locations in Europe to promote the Steak n Shake
brand to prospective franchisees. Similar to our traditional domestic franchise agreements, a typical international franchise
development agreement includes development and franchise fees in addition to subsequent royalty fees based on the gross sales of
each restaurant. As of December 31, 2018, there were a total of 29 franchise units in Europe and the Middle East.

Competition
The restaurant business is one of the most intensely competitive industries. As there are virtually no barriers to entry into the
restaurant business, competitors may include national, regional and local establishments. There may be established competitors
with financial and other resources that are greater than the Company’s restaurant operations capabilities. Restaurant businesses
compete on the basis of price, menu, food quality, location, and customer service. The restaurant business is often affected by
changes in consumer tastes and by national, regional, and local economic conditions. The performance of individual restaurants
may be impacted by factors such as traffic patterns, demographic trends, weather conditions, and competing restaurants.

Government regulations
The Company is subject to various global, federal, state and local laws affecting its restaurant operations. Each of the restaurants
must comply with licensing and regulation by a number of governmental authorities, i.e., health, sanitation, safety and fire agencies
in the jurisdiction in which the restaurant is located. Various federal and state labor laws govern our relationship with our
employees, e.g., minimum wage, overtime pay, unemployment tax, and workers’ compensation. Federal state and local government
agencies have established or are in the process of establishing regulations requiring that we disclose nutritional information. To
date, none of the Company’s restaurant operations have been materially adversely affected by such laws or been affected by any
difficulty, delay or failure to obtain required licenses or approvals.

Trademark and licenses
The name and reputation of Steak n Shake is a material asset and management protects it and other service marks through
appropriate registrations.

Insurance Business
Our insurance business is composed of First Guard Insurance Company and its agency, 1st Guard Corporation (collectively “First
Guard”). First Guard is a direct underwriter of commercial truck insurance, selling physical damage and nontrucking liability
insurance to truckers. First Guard is headquartered in Venice, Florida.

First Guard competes for truck insurance with other companies. The commercial truck insurance business is highly competitive in
the areas of price and service. Vigorous competition is provided by large, well-capitalized companies and by small regional
insurers. First Guard’s insurance products are marketed primarily through direct response methods via the Internet or by telephone.
First Guard’s cost-efficient direct response marketing methods enable it to be a low-cost truck insurer. First Guard uses its own
claim staff to manage claims. Seasonal variations in First Guard’s insurance business are not significant. However, extraordinary
weather conditions or other factors may have a significant effect upon the frequency or severity of claims.

The insurance business is stringently regulated by state insurance departments. First Guard operates under licenses issued by
various insurance authorities. Such supervision and regulation include matters relating to authorized lines of business, capital and
surplus requirements, licensing of insurers, investments, the filing of annual and other financial reports prepared on the basis of
Statutory Accounting Principles, the filing and form of actuarial reports, dividends, and a variety of other financial and non-
financial matters.

Media and Licensing Business
Maxim’s business lies principally in media and licensing. Maxim is headquartered in New York City, New York.

Maxim competes for licensing business with other companies. The nature of the licensing business is predicated on projects that
materialize with irregularity. In addition, publishing is a highly competitive business. The Company's magazines and related
publishing products and services compete with other mass media, including the Internet and many other leisure-time activities.
Competition for advertising dollars is based primarily on advertising rates, circulation levels, reader demographics, advertiser
results, and sales team effectiveness.

Maxim products are marketed under various registered brand names, including, but not limited to, “MAXIM®” and “Maxim®”.

Investments
The Company and its subsidiaries have invested in The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively, “the investment
partnerships”). The investment partnerships operate as private investment funds. As of December 31, 2018, the fair value of the
investments was $715.1 million. These investments are subject to a rolling five-year lock-up period under the terms of the
respective partnership agreements.

Employees
The Company employs 18,684 persons.

Additional information with respect to Biglari Holdings’ businesses
Information related to our reportable segments may be found in Part II, Item 8 of this Form 10-K.

Biglari Holdings maintains a website (www.biglariholdings.com) where its annual reports, press releases, interim shareholder
reports and links to its subsidiaries’ websites can be found. Biglari Holdings’ periodic reports filed with the Securities and
Exchange Commission (the “SEC”), which include Form 10-K, Form 10-Q, Form 8-K and amendments thereto, may be accessed
by the public free of charge from the SEC and through Biglari Holdings’ website. In addition, corporate governance documents
such as Corporate Governance Guidelines, Code of Conduct, Governance, Compensation and Nominating Committee Charter and
Audit Committee Charter are posted on the Company’s website and are available without charge upon written request. The
Company’s website and the information contained therein or connected thereto are not intended to be incorporated into this report
on Form 10-K.

Item 1A.

Risk Factors

Biglari Holdings and its subsidiaries (referred to herein as “we,” “us,” “our,” or similar expressions) are subject to certain risks
and uncertainties in its business operations which are described below. The risks and uncertainties described below are not the only
risks we face. Additional risks and uncertainties not presently known or that are currently deemed immaterial may also impair our
business operations.

Risks relating to Biglari Holdings

We are dependent on our Chairman and CEO.
Our success depends on the services of Sardar Biglari, Chairman and Chief Executive Officer. All major operating, investment,
and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari. If for any reason the services of Mr.
Biglari were to become unavailable, a material adverse effect on our business could occur.

Sardar Biglari, Chairman and CEO, beneficially owns over 50% of our outstanding shares of common stock, enabling Mr.
Biglari to exert control over matters requiring shareholder approval.
Mr. Biglari has the ability to control the outcome of matters submitted to our shareholders for approval, including the election or
removal of directors, the amendment of our certificate of incorporation or bylaws, along with other significant transactions. In
addition, Mr. Biglari has the ability to control the management and affairs of the Company. This control position may conflict with
the interests of some or all of the Company’s passive shareholders, and reduce the possibility of a merger proposal, tender offer or
proxy contest for the removal of directors.

We are a “controlled company” within the meaning of the New York Stock Exchange rules and thus can rely on exemptions
from certain corporate governance requirements.
Because Mr. Biglari beneficially owns more than 50% of the Company’s outstanding voting stock, we are considered a “controlled
company” pursuant to New York Stock Exchange rules. As a result, we are not required to comply with certain director
independence and board committee requirements.

Our historical growth rate is not indicative of our future growth.
When evaluating our historical growth and prospects for future growth, it is important to consider that while our business
philosophy has remained constant our mix of business has changed and will continue to change. Our business model makes it
difficult to assess our prospects for future growth.

Biglari Holdings’ access to capital is subject to restrictions that may adversely affect its ability to satisfy its cash requirements
or implement its growth strategy.
We are a holding company and are largely dependent upon dividends and other sources of funds from our subsidiaries in order to
meet our needs. Steak n Shake’s credit facility contains restrictions on its ability to pay dividends to Biglari Holdings. In addition,
the ability of our insurance subsidiaries to pay dividends to Biglari Holdings is regulated by state insurance laws, which limit the
amount of, and in certain circumstances may prohibit the payment of, cash dividends. Furthermore, as a result of our substantial
investments in The Lion Fund, L.P. and The Lion Fund II, L.P., investment partnerships controlled by Mr. Biglari, our access to
capital is restricted by the terms of their respective partnership agreements, as described more fully below. There is also a high
likelihood that we will make additional investments in these investment partnerships. Taken together, these restrictions may result
in our having insufficient funds to satisfy our cash requirements. As a result, we may need to look to other sources of capital which
may be more expensive or may not be available.

Competition.
Each of our operating businesses faces intense competitive pressure within the markets in which they operate. Competition may
arise domestically as well as internationally. Accordingly, future operating results will depend to some degree on whether our
operating units are successful in protecting or enhancing their competitive advantages. If our operating businesses are unsuccessful
in these efforts, our periodic operating results may decline from current levels in the future. We also highlight certain competitive
risks in the sections below.

Unfavorable domestic and international economic, societal and political conditions could hurt our operating businesses.
To the extent that the economy worsens for a prolonged period of time, one or more of our significant operations could be materially
harmed. In addition, our restaurant operations depend on having access to borrowed funds through the capital markets at reasonable
rates. To the extent that access to credit is restricted or the cost of funding increases, our business could be adversely affected.

Our operating businesses face a variety of risks associated with doing business in foreign markets.
There is no assurance that our international operations will remain profitable. Our international operations are subject to all of the
risks associated with our domestic operations, as well as a number of additional risks, varying substantially country by country.
These include, inter alia, international economic and political conditions, corruption, terrorism, social and ethnic unrest, foreign
currency fluctuations, differing cultures and consumer preferences. Our expansion into international markets could also create risks
to our brands.

In addition, we may become subject to foreign governmental regulations that impact the way we do business with our international
franchisees and vendors. These include antitrust and tax requirements, anti-boycott regulations, international trade regulations, the
USA Patriot Act, the Foreign Corrupt Practices Act, and applicable local law. Failure to comply with any such legal requirements
could subject us to monetary liabilities and other sanctions, which could harm our business and our financial condition.

Potential changes in law or regulations may have a negative impact on our Class A common stock and Class B common stock.
In prior years, bills have been introduced in Congress that, if enacted, would have prohibited the listing of common stock on a
national securities exchange if such common stock was part of a class of securities that has no voting rights or carries
disproportionate voting rights. Although these bills have not been acted upon by Congress, there can be no assurance that such a
bill (or a modified version thereof) will not be introduced in Congress in the future. Legislation or other regulatory developments
could make the shares of Class A common stock and Class B common stock ineligible for trading on the NYSE or other national
securities exchanges.

We may not be able to adequately protect our intellectual property, which could decrease the value of our brand and products.
The success of our business depends on the continued ability to use the existing trademarks, service marks, and other components
of our brand to increase brand awareness and further develop branded products. While we take steps to protect our intellectual
property, our rights to our trademarks could be challenged by third parties or our use of these trademarks may result in a liability
for trademark infringement, trademark dilution, or unfair competition, adversely affecting our profitability. We may also become
subject to these risks in the international markets in which we operate and in which we plan to expand. Any impairment of our
intellectual property or brands, including due to changes in U.S. or foreign intellectual property laws or the absence of effective
legal protections or enforcement measures, could adversely impact our business, financial condition and results of operations.

Litigation could have a material adverse effect on our financial position, cash flows and results of operations.
We are or may be from time to time a party to various legal actions, investigations and other proceedings brought by employees,
consumers, policyholders, suppliers, shareholders, government agencies or other third parties in connection with matters pertaining
to our business, including related to our investment activities. The outcome of such matters is often difficult to assess or quantify
and the cost to defend future proceedings may be significant. Even if a claim is unsuccessful or is not fully pursued, the negative
publicity surrounding any negative allegation regarding our Company, our business or our products could adversely affect our
reputation. While we believe that the ultimate outcome of routine legal proceedings individually and in the aggregate will not have
a material impact on our financial position, we cannot assure that an adverse outcome on, or reputational damage from, any of
these matters would not, in fact, materially impact our business and results of operations for the period when these matters are
completed or otherwise resolved.

Certain agreements with our Chairman and CEO may have an adverse effect on our financial position.
We have entered into a license agreement with Sardar Biglari, Chairman and Chief Executive Officer, under which Mr. Biglari has
granted the Company an exclusive license to use his name when connected to the provision of certain products and services, as
well as a sublicense agreement with Steak n Shake that, inter alia, grants Steak n Shake the right to use the trademark “Steak n
Shake by Biglari.” In the event of a change of control of the Company or Mr. Biglari’s termination without cause or resignation
following specified occurrences, including (1) his removal as Chairman of the Board or Chief Executive Officer or (2) his not
maintaining sole capital allocation authority, Mr. Biglari would be entitled to receive revenue-based royalty payments related to
the usage of his name under the terms of the license agreement for a defined period of no less than five years. In addition, we have
an incentive agreement with Mr. Biglari, in which he is entitled to receive performance-based annual incentive payments contingent
on the growth of the Company’s adjusted book value in each fiscal year.

Risks Relating to Our Restaurant Operations

Our restaurant operations face intense competition from a wide range of industry participants.
The restaurant business is one of the most competitive industries. As there are virtually no barriers to entry into the restaurant
business, competitors may include national, regional and local establishments. There may be established competitors with financial
and other resources that are greater than the Company’s restaurant operations capabilities. Restaurant businesses compete on the
basis of price, menu, food quality, location, and customer service. The restaurant business is often affected by changes in consumer
tastes and by national, regional, and local economic conditions. The performance of individual restaurants may be impacted by
factors such as traffic patterns, demographic trends, weather conditions, and competing restaurants. Additional factors that may
adversely affect the restaurant industry include, but are not limited to, food and wage inflation, safety, and food-borne illness.

Changes in economic conditions may have an adverse impact on our restaurant operations.
Our restaurant operations are subject to normal economic cycles affecting the economy in general or the restaurant industry in
particular. The restaurant industry has been affected by economic factors, including the deterioration of global, national, regional
and local economic conditions, declines in employment levels, and shifts in consumer spending patterns. The disruptions
experienced in the global economy and volatility in the financial markets have reduced, and may continue to reduce, consumer
confidence in the economy, negatively affecting consumer restaurant spending, which could be harmful to our financial position
and results of operations. As a result, decreased cash flow generated from our business may adversely affect our financial position
and our ability to fund our operations. In addition, macroeconomic disruptions could adversely impact the availability of financing
for our franchisees’ expansions and operations.

Our cash flows and financial position could be negatively impacted if we are unable to comply with the restrictions and
covenants in Steak n Shake’s debt agreements.
Covenants in Steak n Shake’s credit facility include restrictions on, among other things, its ability to incur additional indebtedness
and to make distributions to the Company. Steak n Shake’s ability to make payments on its credit facility and to fund operations
depends on its ability to generate cash, which is subject to general economic, financial, competitive, regulatory and other factors
that are beyond our control. Steak n Shake may not generate sufficient cash flow from operations to service this debt or to fund its
other liquidity needs. Steak n Shake’s failure to service its debt could constitute an event of default that, if not cured or waived,
could result, among other things, in the acceleration of their indebtedness, which could negatively impact our operations. However,
neither the Company nor any of our affiliates provide any guarantees of Steak n Shake’s debts.

Fluctuations in commodity and energy prices and the availability of commodities, including beef and dairy, could affect our
restaurant business.
The cost, availability and quality of ingredients restaurant operations use to prepare their food is subject to a range of factors, many
of which are beyond their control. A significant component of our restaurant business’ costs is related to food commodities,
including beef and dairy products, which can be subject to significant price fluctuations due to seasonal shifts, climate conditions,
industry demand, changes in commodity markets, and other factors. If there is a substantial increase in prices for these food
commodities, our results of operations may be negatively affected. In addition, our restaurants are dependent upon frequent
deliveries of perishable food products that meet certain specifications. Shortages or interruptions in the supply of perishable food
products caused by unanticipated demand, problems in production or distribution, disease or food-borne illnesses, inclement
weather, or other conditions could adversely affect the availability, quality, and cost of ingredients, which would likely lower
revenues, damage our reputation, or otherwise harm our business.

Adverse weather conditions or losses due to casualties could negatively impact our operating performance.
Property damage caused by casualties and natural disasters, instances of inclement weather, flooding, hurricanes, fire, and other
acts of nature can adversely impact sales in several ways. Many of Steak n Shake’s and Western Sizzlin’s restaurants are located
in the Midwest and Southeast portions of the United States. During the first and fourth quarters, restaurants in the Midwest may
face harsh winter weather conditions. During the third and fourth quarters, restaurants in the Southeast may experience hurricanes
or tropical storms. Our sales and operating results may be negatively affected by these harsh weather conditions, which could make
it more difficult for guests to visit our restaurants, necessitate the closure of restaurants, cause physical damage, or lead to a shortage
of employees.

We are subject to health, employment, environmental, and other government regulations, and failure to comply with existing
or future government regulations could expose us to litigation or penalties, damage our reputation, and lower profits.
We are subject to various global, federal, state, and local laws and regulations affecting our restaurant operations. Changes in
existing laws, rules and regulations applicable to us, or increased enforcement by governmental authorities, may require us to incur
additional costs and expenses necessary for compliance. If we fail to comply with any of these laws, we may be subject to
governmental action or litigation, and our reputation could be accordingly harmed. Injury to our reputation would, in turn, likely
reduce revenues and profits.

The development and construction of restaurants is subject to compliance with applicable zoning, land use, and environmental
regulations. Difficulties in obtaining, or failure to obtain, the required licenses or approvals could delay or prevent the development
of a new restaurant in a particular area.

In recent years, there has been an increased legislative, regulatory, and consumer focus on nutrition and advertising practices in
the food industry. As a result, restaurant operations may become subject to regulatory initiatives in the area of nutrition disclosure
or advertising, such as requirements to provide information about the nutritional content of our food products, which could increase
expenses. The operation of the Steak n Shake and Western Sizzlin franchise system is also subject to franchise laws and regulations
enacted by a number of states, and to rules promulgated by the U.S. Federal Trade Commission. Any future legislation regulating
franchise relationships may negatively affect our operations, particularly our relationship with franchisees. Failure to comply with
new or existing franchise laws and regulations in any jurisdiction or to obtain required government approvals could result in a ban
or temporary suspension on future franchise sales. Further national, state and local government initiatives, such as mandatory
health insurance coverage, or proposed increases in minimum wage rates could adversely affect our business.

Risks Relating to Our Investment Activities

Our investment activities are conducted primarily through outside investment partnerships, The Lion Fund, L.P. and The Lion
Fund II, L.P., which are controlled by Mr. Biglari.
Our investment activities are conducted mainly through these outside investment partnerships. Under the terms of their partnership
agreements, each contribution made by the Company to the investment partnerships is subject to a five-year lock-up period, and
any distribution upon our withdrawal of funds will be paid out over a two-year period (and may be paid in-kind rather than in cash,
thus increasing the difficulty of liquidating these investments). As a result of these provisions and our consequent inability to
access this capital for a defined period, our capital invested in the investment partnerships may be subject to an increased risk of
loss of all or a significant portion of value, and we may become unable to meet our capital requirements. There is a high likelihood
that we will make additional investments in these investment partnerships in the future.

We also have a services agreement with Biglari Capital Corp., the general partner of the investment partnerships (“Biglari Capital”),
and Biglari Enterprises LLC (collectively, the “Biglari Entities”), in which the Company will pay a fixed fee to the Biglari Entities
for business and administrative-related services. The Biglari Entities are owned by Mr. Biglari. There can be no assurance that the
fees paid will be commensurate with the benefits received.

The incentive allocation to which Mr. Biglari, as Chairman and Chief Executive Officer of Biglari Capital, is entitled under the
terms of the respective partnership agreements is equal to 25% of the net profits allocated to the limited partners in excess of a 6%
hurdle rate over the previous high-water mark.

Our investments are unusually concentrated and fair values are subject to a loss in value.
Our investments are predominantly held through the investment partnerships, which generally invest in common stocks. These
investments are largely concentrated in the common stock of one investee, Cracker Barrel Old Country Store, Inc. A significant
decline in the major values of these investments may produce a large decrease in our consolidated shareholders’ equity and can
have a material adverse effect on our consolidated book value per share and earnings.

We are subject to the risk of possibly becoming an investment company under the Investment Company Act of 1940.
We run the risk of inadvertently becoming an investment company, which would require us to register under the Investment
Company Act of 1940, as amended (the “Investment Company Act”). Registered investment companies are subject to extensive,
restrictive and potentially adverse regulations relating to, among other things, operating methods, management, capital structure,
dividends and transactions with affiliates. Registered investment companies are not permitted to operate their business in the
manner in which we operate our business, nor are registered investment companies permitted to have many of the relationships
that we have with our affiliated companies.

To avoid becoming and registering as an investment company under the Investment Company Act, we operate as an ongoing
enterprise, with approximately 19,000 employees, along with an asset base from which to pursue acquisitions. Furthermore, Section
3(c)(3) of the Investment Company Act excludes insurance companies from the definition of “investment company”. Because we
monitor the value of our investments and structure transactions accordingly, we may structure transactions in a less advantageous
manner than if we did not have Investment Company Act concerns, or we may avoid otherwise economically desirable transactions
due to those concerns. In addition, adverse developments with respect to our ownership of certain of our operating subsidiaries,
including significant appreciation or depreciation in the market value of certain of our publicly traded holdings, could result in our
inadvertently becoming an investment company. If it were established that we were an investment company, there would be a risk,
among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, in
an action brought by the SEC, that we would be unable to enforce contracts with third parties or that third parties could seek to
obtain rescission of transactions with us undertaken during the period it was established that we were an unregistered investment
company.

Risks Relating to Our Insurance Business

Our success depends on our ability to underwrite risks accurately and to charge adequate rates to policyholders.
Our results of operations depend on our ability to underwrite and set rates accurately for risks assumed. A primary role of the
pricing function is to ensure that rates are adequate to generate sufficient premiums to pay losses, loss adjustment expenses, and
underwriting expenses.

Our insurance business is vulnerable to significant catastrophic property loss, which could have an adverse effect on its
financial condition and results of operations.
Our insurance business faces a significant risk of loss in the ordinary course of its business for property damage resulting from
natural disasters, man-made catastrophes and other catastrophic events. These events typically increase the frequency and severity
of commercial property claims. Because catastrophic loss events are by their nature unpredictable, historical results of operations
may not be indicative of future results of operations, and the occurrence of claims from catastrophic events may result in significant
volatility in our insurance business’ financial condition and results of operations from period to period. We attempt to manage our
exposure to these events through reinsurance programs, although there is no assurance we will be successful in doing so.

Our insurance business is subject to extensive existing state, local and foreign governmental regulations that restrict its ability
to do business and generate revenues.
Our insurance business is subject to regulation in the jurisdictions in which it operates. These regulations may relate to, among
other things, the types of business that can be written, the rates that can be charged for coverage, the level of capital and reserves
that must be maintained, and restrictions on the types and size of investments that can be placed. Regulations may also restrict the
timing and amount of dividend payments. Accordingly, existing or new regulations related to these or other matters or regulatory
actions imposing restrictions on our insurance business may adversely impact its results of operations.

Risks Relating to Our Media and Licensing Business

Our media business faces significant competition from other magazine publishers and new forms of media, including digital
media, and as a result our media business may not be able to improve its operating results.
Our media business competes principally with other magazine publishers. The proliferation of choices available to consumers for
information and entertainment has resulted in audience fragmentation and has negatively impacted overall consumer demand for
print magazines and intensified competition with other magazine publishers for share of print magazine readership. Our media
business also competes with digital publishers and other forms of media. This competition has intensified as a result of the growing
popularity of mobile devices and the shift in preference of some consumers from print media to digital media for the delivery and
consumption of content.

Competition among print magazine and digital publishers for advertising is primarily based on the circulation and readership of
magazines and the number of visitors to websites, respectively, and the demographics of customers, advertising rates, plus the
effectiveness of advertising sales teams. The proliferation of new platforms available to advertisers, combined with continuing
competition from print platforms, has impacted both the amount of advertising our media business is able to sell and the rates it
can command.

Our pursuit of licensing opportunities for the Maxim brand may prove to be unsuccessful.
Maxim’s success depends to a significant degree upon its ability to develop new licensing agreements to expand its brand.
However, these licensing efforts may be unsuccessful. We may be unable to secure favorable terms for future licensing
arrangements, which could lead to, among other things, disputes with licensing partners that hinder our ability to grow the Maxim
brand. Future licensing partners may also fail to honor their contractual obligations or take other actions that can diminish the
value of the Maxim brand. Disputes could also arise that prevent or delay our ability to collect licensing revenues under these
arrangements. If any of these developments occur or our licensing efforts are otherwise not successful, the value and recognition
of the Maxim brand, as well as the prospects of our media business, could be materially, adversely affected.

Our media business is exposed to risks associated with weak economic conditions.
Because magazines are generally discretionary purchases for consumers, circulation revenues are sensitive to general economic
conditions and economic cycles. Certain economic conditions such as general economic downturns, including periods of increased
inflation, unemployment levels, interest rates, gasoline and other energy prices, or declining consumer confidence, may negatively
impact consumer spending. Reduced consumer spending or a shift in consumer spending patterns away from discretionary items
will likely result in reduced demand for our media business’ magazines and may result in decreased revenues.

Item 1B. Unresolved Staff Comments

None.

Item 2.

Properties

Restaurant Properties
As of December 31, 2018, restaurant operations included 685 company-operated and franchise locations. Restaurant operations
own the land and building for 153 restaurants. The following table lists the locations of the restaurants, as of December 31, 2018.

Company OperatedFranchisedCompany OperatedFranchisedTotalDomestic:Alabama ...................................................2 7 - 6 15 Arizona ....................................................1 1 - - 2 Arkansas ..................................................- 7 - 16 23 California .................................................1 6 - 1 8 Colorado ..................................................2 2 - - 4 Delaware ..................................................- 1 - - 1 Florida .....................................................80 4 - - 84 Georgia ....................................................22 17 - 5 44 Illinois ......................................................61 10 - - 71 Indiana .....................................................68 5 - - 73 Iowa .........................................................3 - - - 3 Kansas .....................................................- 4 - - 4 Kentucky .................................................14 10 - - 24 Louisiana .................................................- 1 - - 1 Maryland .................................................- 1 - 1 2 Michigan ..................................................19 - - - 19 Mississippi .............................................- 4 - 1 5 Missouri ..................................................37 24 - - 61 Nevada .....................................................- 6 - - 6 North Carolina .........................................6 11 - 6 23 Ohio .........................................................63 3 - 1 67 Oklahoma ................................................- 3 - 7 10 Pennsylvania ...........................................7 6 - - 13 South Carolina .........................................1 5 - 3 9 Tennessee ................................................9 17 - 4 30 Texas .......................................................14 18 - 1 33 Virginia ....................................................- 8 3 3 14 Washington ..............................................- 1 - - 1 West Virginia ...........................................- 2 1 - 3 International:France ......................................................2 20 - - 22 Italy .........................................................- 2 - - 2 Portugal ...................................................- 4 - - 4 Qatar ........................................................- 1 - - 1 Saudi Arabia ............................................- 1 - - 1 Spain ........................................................1 1 - - 2 Total ........................................................413 213 4 55 685 Steak n ShakeWestern Sizzlin

Item 3.

Legal Proceedings

We are involved in various legal proceedings and have certain unresolved claims pending. We believe, based on examination of
these matters and experiences to date, that the ultimate liability, if any, in excess of amounts already provided in our consolidated
financial statements is not likely to have a material effect on our results of operations, financial position or cash flow.

On January 29, 2018, a shareholder of the Company filed a purported class action complaint against the Company and the members
of our Board of Directors in the Superior Court of Hamilton County, Indiana. The shareholder generally alleges claims of breach
of fiduciary duty by the members of our Board of Directors and unjust enrichment to Mr. Biglari as a result of the issuance of a
dual class structure.

On March 26, 2018, a shareholder of the Company filed a purported class action complaint against the Company and the members
of our Board of Directors in the Superior Court of Hamilton County, Indiana. This shareholder generally alleges claims of breach
of fiduciary duty by the members of our Board of Directors. This shareholder sought to enjoin the shareholder vote on April 26,
2018 to approve the issuance of the dual class structure. On April 16, 2018, the shareholders withdrew their motions to enjoin the
shareholder vote on April 26, 2018.

On May 17, 2018, the shareholders who filed the January 29, 2018 complaint and the March 26, 2018 complaint filed a new,
consolidated complaint against the Company and the members of our Board of Directors in the Superior Court of Hamilton County,
Indiana. The shareholders generally allege claims of breach of fiduciary duty by the members of our Board of Directors and unjust
enrichment to Mr. Biglari arising out of the issuance of the dual class structure. The shareholders seek, for themselves and on
behalf of all other shareholders as a class, a declaration that the defendants breached their duty to the shareholders and the class,
and to recover unspecified damages, pre-judgment and post-judgment interest, and an award of their attorneys’ fees and other
costs.

On December 14, 2018, the Judge of the Superior Court of Hamilton County, Indiana issued an order granting the Company’s
motion to dismiss the shareholders’ lawsuits. On January 11, 2019, the shareholders filed an appeal of the Judge’s order dismissing
the lawsuits.

The Company believes the claims in each case are without merit and intends to defend these cases vigorously.

Item 4.

Mine Safety Disclosures

Not applicable.

Part II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Market Information
Biglari Holdings’ Class A common stock and Class B common stock are listed for trading on the NYSE, trading symbol: BH.A
and BH, respectively.

Shareholders
Biglari Holdings had 3,173 beneficial shareholders of its Class A common stock and 5,776 beneficial shareholders of its Class B
common stock at February 11, 2019.

Dividends
Biglari Holdings has never declared a dividend.

Issuer Purchases of Equity Securities
From December 11, 2018 through December 17, 2018, Sardar Biglari purchased 1,393 share of Class A common stock at an
average price paid per share of $712.24 and 350 shares of Class B common stock at an average price paid per share of $125.99.
Mr. Biglari may be deemed to be an “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of
1934, as amended. The purchases were made through open market transactions.

Performance Graph
The graph below matches Biglari Holdings Inc.'s cumulative 5-year total shareholder return on its Class A common stock and
Class B common stock with the cumulative total returns of the S&P 500 Index and the S&P Restaurants Index. The graph tracks
the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from
December 31, 2013 to December 31, 2018.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Biglari Holdings Inc., the S&P 500 Index
and the S&P Restaurants Index

$200

$180

$160

$140

$120

$100

$80

$60

$40

$20

12/13

12/14

12/15

12/16

12/17

12/18

Biglari Holdings Inc.

S&P 500

S&P Restaurants

*$100 invested on 12/31/13 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.

The preceding stock price performance graph and related information shall not be deemed “soliciting material” or to be “filed”
with the SEC, nor shall such information be incorporated by reference into any future filings under the Securities Exchange Act of
1934, as amended, or the Securities Act of 1933, as amended, except to the extent that we specifically incorporate it by reference
into such filings.

Securities Authorized for Issuance Under Equity Compensation Plans
Biglari Holdings does not have any equity compensation plans.

Item 6.

Selected Financial Data

(dollars in thousands except per share data)

Earnings per share of common stock is based on the weighted average number of shares outstanding during the period. The issuance
of dual class common stock on April 30, 2018 is applied to years 2014 through 2017 on a retrospective basis for the calculation of
earnings per share. The Company has applied the “two-class method” of computing earnings per share as prescribed in ASC 260,
“Earnings Per Share.”

For total assets, periods prior to 2016 were adjusted for the reclassifications of debt issuance costs and deferred taxes. For long-
term notes payable and other borrowings, periods prior to 2016 were adjusted for the reclassification of debt issuance.

As of January 1, 2018, franchise royalties and fees are composed of royalties and fees from Steak n Shake and Western Sizzlin
franchisees. Royalties are based upon a percentage of sales of the franchise restaurant and are recognized as earned. Franchise
royalties are billed on a monthly basis. Initial franchise fees when a new restaurant opens or at the start of a new franchise term are
recorded as deferred revenue when received and recognized as revenue over the term of the franchise agreement. This represents a
change in methodology under the January 1, 2018 adoption of ASC 606 for we have historically recognized initial franchise fees
upon the opening of a franchise restaurant. Comparative prior periods have not been adjusted.

Years 2015 through 2018 ended December 31. In 2014, the Company’s Board of Directors approved a change in the Company’s
fiscal year-end moving from the last Wednesday in September to December 31 of each year. Transition period is for September 25,
2014 to December 31, 2014. Fiscal year 2014 ended on the last Wednesday nearest September 30.

2018201720162015Revenue: Total revenues ................................................................................809,894$ 839,804$ 850,076$ 861,452$ Earnings:Net earnings (loss) .........................................................................19,392$ 50,071$ 99,451$ (15,843)$ Net earnings (loss) per equivalent Class A share ...........................55.71$ 136.01$ 271.22$ (33.94)$ Year-end data:Total assets ....................................................................................1,029,493$ 1,063,584$ 1,096,967$ 987,079$ Long-term notes payable and other borrowings ............................240,001 256,994 281,555 296,062 Biglari Holdings Inc. shareholders’ equity .....................................570,455$ 571,328$ 531,940$ 451,372$ Transition Period52 Weeks Ended2014Revenue: Total revenues .....................................................................................................................................224,450$ 793,811$ Earnings:Net earnings attributable to Biglari Holdings Inc. ................................................................................91,050$ 28,804$ Net earnings per equivalent Class A share ..........................................................................................161.63$ 56.16$ Year-end data:Total assets ..........................................................................................................................................1,298,509$ 1,156,310$ Long-term notes payable and other borrowings ..................................................................................309,003 311,448 Biglari Holdings Inc. shareholders’ equity ...........................................................................................725,551$ 638,717$ Fiscal2014

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollars in thousands except per share data)

Net earnings attributable to Biglari Holdings shareholders are disaggregated in the table that follows. Amounts are recorded after
deducting income taxes.

The following discussion should be read in conjunction with Item 1, Business and our Consolidated Financial Statements and the
notes thereto included in this Form 10-K. The following discussion should also be read in conjunction with the “Cautionary Note
Regarding Forward-Looking Statements” and the risks and uncertainties described in Item 1A, Risk Factors set forth above.

201820172016Operating businesses:Restaurant ........................................................................................................(2,613)$ 9,725$ 24,834$ Insurance ..........................................................................................................4,915 3,097 3,313 Media ...............................................................................................................796 435 (6,385) Other ................................................................................................................472 506 (157) Total operating businesses .................................................................................3,570 13,763 21,605 Corporate ............................................................................................................(8,661) 32,072 (6,387) Investment partnership gains .............................................................................33,240 11,080 91,332 Interest expense on notes payable ......................................................................(8,757) (6,844) (7,099) 19,392$ 50,071$ 99,451$ Management’s Discussion and Analysis (continued)

Restaurants

Our restaurant businesses, which include Steak n Shake and Western Sizzlin, comprise 685 company-operated and franchise
restaurants as of December 31, 2018.

The term “same-store sales” refers to the sales of company-operated units open at least 18 months at the beginning of the current
period and have remained open through the end of the period. Same-store traffic measures the number of patrons who walk through
the same units.

Restaurant operations for 2018, 2017 and 2016 are summarized below.

Company- operatedFranchisedCompany-operatedFranchisedTotalTotal stores as of December 31, 2015 .......................417 144 4 66 631 Net restaurants opened (closed) ................................- 29 (1) (2) 26 Total stores as of December 31, 2016 .......................417 173 3 64 657 Net restaurants opened (closed) ................................(2) 27 1 (6) 20 Total stores as of December 31, 2017 .......................415 200 4 58 677 Net restaurants opened (closed) ............................(2) 13 - (3) 8 Total stores as of December 31, 2018 ....................413 213 4 55 685 Steak n ShakeWestern Sizzlin 2018 2017 2016RevenueNet sales ...............................................................740,922$ 781,856$ 795,322$ Franchise royalties and fees ..................................30,998 20,773 18,794 Other revenue .......................................................3,770 4,524 3,798 Total revenue ...........................................................775,690 807,153 817,914 Restaurant cost of salesCost of food ..........................................................223,273 30.1%238,143 30.5%221,657 27.9%Restaurant operating costs ...................................393,348 53.1%404,373 51.7%395,262 49.7%Rent ......................................................................19,835 2.7%18,514 2.4%18,047 2.3%Total cost of sales ....................................................636,456 661,030 634,966 Selling, general and administrativeGeneral and administrative ...................................57,684 7.4%60,527 7.5%59,446 7.3%Marketing .............................................................55,063 7.1%49,589 6.1%51,324 6.3%Other expenses .....................................................8,060 1.0%4,011 0.5%3,907 0.5%Total selling, general and administrative 120,807 15.6%114,127 14.1%114,677 14.0%Depreciation and amortization ................................18,831 2.4%20,623 2.6%21,573 2.6%Interest on obligations under leases .........................8,207 9,082 9,475 Earnings before income taxes ...................................(8,611) 2,291 37,223 Income tax expense (benefit) ...................................(5,998) (7,434) 12,389 Net earnings (loss) ...................................................(2,613)$ 9,725$ 24,834$ Cost of food, restaurant operating costs and rent expense are expressed as a percentage of net sales.General and administrative, marketing, other expenses and depreciation and amortization are expressed as a percentage of total revenue.Management’s Discussion and Analysis (continued)

Net sales during 2018 were $740,922 representing a decrease of $40,934 when compared to 2017. The decreased performance of
our restaurant operations in 2018 was largely driven by Steak n Shake’s same-store sales, which decreased 5.1% whereas customer
traffic decreased by 7.0%. Net sales during 2017 were $781,856 representing a decrease of $13,466 when compared to 2016. The
decreased performance of our restaurant operations in 2017 was largely driven by Steak n Shake’s same-store sales. In 2017, Steak
n Shake’s same-store sales decreased by 1.8% compared to 2016.

In 2018, franchise royalties and fees increased $10,225 or 49.2%. During 2018, Steak n Shake opened 33 franchise units and closed
20. Western Sizzlin opened one franchise unit and closed four. The increase in franchise royalties and fees was primarily due to
the adoption of new ASC 606 accounting guidance for revenue recognition. Franchise marketing contributions are now reflected
in revenue with a corresponding increase in marketing expense. As a result, franchise revenue increased by $9,417 or 45.3% during
2018. Franchise royalties and fees during 2017 increased $1,979 compared to 2016. In 2017 Steak n Shake opened 40 franchise
units and closed thirteen. During the same period, six Western Sizzlin franchise units closed. The increase in franchise fees and
royalties during 2017 are primarily attributable to new Steak n Shake franchise units, which opened in 2017 and 2016.

Cost of food in 2018 was $223,273 or 30.1% of net sales, compared with $238,143 or 30.5% of net sales in 2017 and $221,657 or
27.9% of net sales in 2016. The increase as a percent of net sales during 2018 and 2017 compared to 2016 was attributable to
increased commodity costs.

Restaurant operating costs during 2018 were $393,348 or 53.1% of net sales, compared to $404,373 or 51.7% of net sales in 2017
and $395,262 or 49.7% of net sales in 2016. Total costs as a percent of net sales during 2018 and 2017 increased compared to the
respective prior years principally due to higher wages.

Selling, general and administrative expenses during 2018 were $120,807 or 15.6% of total revenues.

General and administrative expenses decreased by $2,843 during 2018 compared to 2017, primarily because of decreased personnel
costs.

Marketing expense increased by $5,474 in 2018 compared to 2017 primarily due to the adoption of new accounting guidance. New
ASC 606 accounting guidance requires the Company to recognize franchise fees as revenue and reflect advertising expenditures
made on behalf of the franchisees as marketing expense. The new guidance increased marketing expenses by $9,689 during 2018.

Other expenses increased by $4,049 during 2018 compared to 2017. The increase in other expenses was primarily due to asset
impairments of $5,677.

Selling, general and administrative expenses during 2017 were $114,127 or 14.1% of total revenues.

General and administrative expenses increased by $1,081 during 2017 compared to 2016, primarily because of increased recruiting.

Marketing expense decreased by $1,735 in 2017 compared to 2016 because of a decrease in promotions.

Interest on obligations under leases was $8,207 during 2018, versus $9,082 during 2017 and $9,475 during 2016. The year over
year decrease in interest expense is primarily attributable to the maturity and retirement of lease obligations. The total obligations
under leases outstanding at December 31, 2018 were $64,200, compared to $80,752 at December 31, 2017 and $89,498 at
December 31, 2016.

Management’s Discussion and Analysis (continued)

Insurance

First Guard is a direct underwriter of commercial truck insurance, selling physical damage and nontrucking liability insurance to
truckers. Earnings of our insurance business are summarized below.

First Guard’s insurance products are marketed primarily through direct response methods via the Internet or by telephone. First
Guard’s cost-efficient direct response marketing methods enable it to be a low-cost trucking insurer.

In 2018, premiums earned increased $2,223 or 9.2% compared to 2017. Premiums earned during 2017 increased $1,845 or 8.2%
compared to 2016. Pre-tax underwriting gain during 2018 was $5,634, an increase of $1,116 (24.7%) compared to 2017. Pre-tax
underwriting gain during 2017 was $4,518, a decrease of $395 (8.0%) compared to 2016. We strive to generate pre-tax underwriting
profits every year.

Insurance premiums and other on the statement of earnings includes premiums earned, investment income and commissions, which
are included in other income in the above table.

201820172016Premiums earned .................................................................................................26,465$ 24,242$ 22,397$ Insurance losses ..................................................................................................15,457 14,959 12,641 Underwriting expenses .......................................................................................5,374 4,765 4,843 Pre-tax underwriting gain ....................................................................................5,634 4,518 4,913 Other income and expensesInvestment income and commissions ..............................................................1,163 701 600 Other expense .................................................................................................(582) (449) (378) Total other income ...........................................................................................581 252 222 Earnings before income taxes ..............................................................................6,215 4,770 5,135 Income tax expense .............................................................................................1,300 1,673 1,822 Contribution to net earnings ...............................................................................4,915$ 3,097$ 3,313$ Management’s Discussion and Analysis (continued)

Media and Licensing

Maxim’s business lies principally in media and licensing. Earnings of our media operations are summarized below.

We acquired Maxim with the idea of transforming its business model. The magazine developed the Maxim brand, a franchise we
are utilizing to generate nonmagazine revenue, notably through licensing, a cash-generating business related to consumer products,
services, and events.

We have taken the risk on the belief that the probability for gain in value more than justifies the risk of loss.

Investment Partnership Gains

Earnings from our investments in partnerships are summarized below.

Investment partnership gains include gains and losses from changes in market values of investments held by the investment
partnerships and dividends earned by the partnerships. The volatility of the gains and losses during the various years is attributable
to changes in market values of investments. Dividend income has a lower effective tax rate than income from changes in market
values.

The investments held by the investment partnerships are largely concentrated in the common stock of one investee, Cracker Barrel
Old Country Store, Inc.

The investment partnerships hold the Company’s common stock as investments. The Company’s pro-rata share of its common
stock held by the investment partnerships is recorded as treasury stock even though these shares are legally outstanding. Gains and
losses on Company common stock included in the earnings of the partnerships are eliminated.

2018 2017 2016Revenue ........................................................................................................6,576$ 7,708$ 9,165$ Media cost of sales .........................................................................................4,152 6,527 15,834 Selling, general and administrative expenses ......................................................1,329 1,570 3,000 Depreciation and amortization ..........................................................................27 50 409 Earnings (loss) before income taxes ..................................................................1,068 (439) (10,078) Income tax expense (benefit) ...........................................................................272 (874) (3,693) Contribution to net earnings .............................................................................796$ 435$ (6,385)$ 201820172016Investment partnership gains ............................................................................40,411$ 6,965$ 135,886$ Loss on contribution of securities to investment partnership ................................- - (306) Investment partnership gains ............................................................................40,411 6,965 135,580 Income tax expense (benefit) ...........................................................................7,171 (4,115) 44,248 Contribution to net earnings .............................................................................33,240$ 11,080$ 91,332$ Management’s Discussion and Analysis (continued)

Interest Expense

The Company’s interest expense is summarized below.

The outstanding balance on Steak n Shake’s credit facility on December 31, 2018 was $183,698 compared to $185,898 on
December 31, 2017. The decrease in the outstanding balance was due to debt payments of $2,200 during 2018. The interest rate
was 6.28% and 5.32% as of December 31, 2018 and 2017, respectively. Interest expense during 2018 increased by $637 compared
to 2017, primarily due to higher interest rates during 2018. Interest expense during 2017 decreased by $410 compared to 2016,
primarily due to lower debt during 2017.

Income Taxes

Consolidated income tax was a benefit of $2,637 in 2018 versus a benefit of $62,961 in 2017 and an expense of $46,812 in 2016.
The income tax benefit of $2,637 was primarily from the use of employment tax credits generated by restaurant operations. The
2017 Tax Cuts and Jobs Act reduces the U.S. statutory corporate tax rate from 35% to 21% for our tax years beginning in 2018,
which resulted in the re-measurement of the federal portion of our deferred tax assets and liabilities as of December 31, 2017. The
change in the tax rate resulted in a onetime deferred tax benefit of $51,707 during 2017. The deferred income tax benefit is derived
from a re-measurement in deferred tax balances to the new statutory rate applicable to unrealized gains on marketable securities
held by the Company and in the investment partnerships.

Corporate

Corporate expenses exclude the activities in the restaurant, insurance, media and other companies. Corporate net losses during
2018 were $8,661 versus net earnings of $32,072 during 2017 and net losses of $6,387 during 2016. In 2017, an increase in
shareholders’ equity was derived from a re-measurement in deferred tax liability to the new statutory rate applicable to unrealized
gains on marketable securities. The majority of the Company’s deferred tax liabilities associated with unrealized gains on
marketable securities are held in the corporate account.

Financial Condition

Our consolidated shareholders’ equity on December 31, 2018 was $570,455, a decrease of $873 compared to the December 31,
2017 balance. Shareholders’ equity increased by $19,392 in net income and was offset by an increase in treasury stock of $19,292.
The increase in treasury stock was primarily a result of recording our proportionate interest in shares of the Company’s stock
purchased during 2018 by The Lion Fund II, L.P. under a Rule 10b5-1 trading plan. The shares purchased by the investment
partnership are legally outstanding but under accounting convention the Company’s proportional ownership of the shares is
reflected as treasury shares in the consolidated financial statements.

Consolidated cash and investments are summarized below.

Unrealized gains/losses of Biglari Holdings’ stock held by the investment partnerships are eliminated in the Company’s
consolidated financial results.

201820172016Interest expense on notes payable and other borrowings ...................................(11,677)$ (11,040)$ (11,450)$ Income tax benefit ...............................................................................................(2,920) (4,196) (4,351) Interest expense net of tax ..................................................................................(8,757)$ (6,844)$ (7,099)$ 20182017Cash and cash equivalents ...............................................................................................................48,557$ 58,577$ Investments .....................................................................................................................................33,860 23,289 Investments reported in other current assets and other assets .......................................................4,463 4,463 Fair value of interest in investment partnerships ...........................................................................715,102 925,279 Total cash and investments .............................................................................................................801,982 1,011,608 Less: portion of Company stock held by investment partnerships ...............................................(157,622) (359,258) Carrying value of cash and investments on balance sheet ...............................................................644,360$ 652,350$ December 31,Management’s Discussion and Analysis (continued)

Liquidity
Our balance sheet continues to maintain significant liquidity. Consolidated cash flow activities are summarized below.

In 2018, cash from operating activities decreased by $5,102 compared to 2017 and by $42,671 compared to 2016. Net earnings
(excluding non-cash items) were $3,061 during 2018, $3,316 during 2017 and $28,780 during 2016. The decrease in net earnings
during 2018 and 2017 compared to 2016 was primarily due to decreases in restaurant net earnings. Distributions from investment
partnerships were $29,660 during 2018, $9,395 during 2017 and $26,265 during 2016. Changes in working capital accounts were
a decrease of $12,043 during 2018, and increases during 2017 and 2016 of $13,069 and $8,304, respectively. The decrease of
working capital accounts during 2018 was primarily tied to the payment of the 2017 CEO incentive fee of $7,353. And the accrual
of the 2017 CEO incentive fee increased working capital accounts during 2017.

Net cash used in investing activities increased during 2018 by $13,742 compared to 2017, and decreased by $3,505 compared to
2016. Capital expenditures during 2018 were $7,259 and $6,630 higher than capital expenditures during 2017 and 2016,
respectively. Purchases of investments, net of redemptions of fixed maturity securities during 2018 were $9,273 and $6,385 higher
than purchases of investments during 2017 and 2016, respectively. Distributions from investment partnerships of $39,040 during
2018 were reinvested into the investment partnerships during 2018.

During 2018, 2017 and 2016 we incurred debt payments of $7,579, $23,030 and $15,295, respectively. Debt obligations were
reduced in 2018 because of additional principal payments on long-term debt during 2017 and 2016.

We intend to meet the working capital needs of our operating subsidiaries principally through anticipated cash flows generated
from operations, cash on hand, existing credit facilities, and the sale of excess properties and investments. We continually review
available financing alternatives.

Steak n Shake Credit Facility
On March 19, 2014, Steak n Shake and its subsidiaries entered into a credit agreement which provided for a senior secured term
loan facility in an aggregate principal amount of $220,000 and a senior secured revolving credit facility in an aggregate principal
amount of up to $30,000. On October 27, 2017, Steak n Shake determined to end the use of its senior secured revolving credit
facility. In 2017, Steak n Shake deposited cash to satisfy required collateral for casualty insurance previously collateralized by
letters of credit issued through the revolving credit facility. The deposits are recorded in other assets under restricted cash in the
consolidated balance sheets.

The term loan is scheduled to mature on March 19, 2021. It amortizes at an annual rate of 1.0% in equal quarterly installments,
beginning June 30, 2014, at 0.25% of the original principal amount of the term loan, subject to mandatory prepayments from excess
cash flow, asset sales and other events described in the credit agreement. The balance will be due at maturity.

Steak n Shake has the right to request an incremental term loan facility from participating lenders and/or eligible assignees at any
time, up to an aggregate total principal amount not to exceed $70,000 if certain customary conditions within the credit agreement
are met.

Borrowings bear interest at a rate per annum equal to a base rate or a Eurodollar rate (minimum of 1%) plus an applicable margin.
Interest on the term loan is based on a Eurodollar rate plus an applicable margin of 3.75% or on the prime rate plus an applicable
margin of 2.75%. The interest rate on the term loan was 6.28% and 5.32% as of December 31, 2018 and 2017, respectively.

The credit agreement includes customary affirmative and negative covenants and events of default. As of December 31, 2018, we
were in compliance with all covenants. Steak n Shake’s credit facility contains restrictions on its ability to pay dividends to Biglari
Holdings.

201820172016Net cash provided by operating activities ..........................................................20,678$ 25,780$ 63,349$ Net cash used in investing activities ...................................................................(25,290) (11,548) (28,795) Net cash used in financing activities ...................................................................(7,530) (23,000) (15,231) Effect of exchange rate changes on cash ..............................................................(78) 165 (38) Increase (decrease) in cash, cash equivalents and restricted cash .......................(12,220)$ (8,603)$ 19,285$ Management’s Discussion and Analysis (continued)

The term loan is secured by first priority security interests in substantially all the assets of Steak n Shake. Disruptions in debt
capital markets that restrict access to funding when needed could adversely affect the results of operations, liquidity and capital
resources of Steak n Shake. Biglari Holdings is not a guarantor under the credit facility. As of December 31, 2018, $183,698 was
outstanding under the term loan.

Western Sizzlin Revolver
As of December 31, 2018, Western Sizzlin had no debt outstanding under the revolver.

Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain
accounting policies require management to make estimates and judgments concerning transactions that will be settled several years
in the future. Amounts recognized in our consolidated financial statements from such estimates are necessarily based on numerous
assumptions involving varying and potentially significant degrees of judgment and uncertainty. Accordingly, the amounts currently
reflected in our consolidated financial statements will likely increase or decrease in the future as additional information becomes
available.

We believe the following critical accounting policies represent our more significant judgments and estimates used in preparation
of our consolidated financial statements. Given the current composition of our business, we do not believe that any accounting
policies related to our insurance or media businesses were critical to the preparation of our consolidated financial statements as of
and for the year ended December 31, 2018.

Consolidation
The consolidated financial statements include the accounts of (i) Biglari Holdings Inc., and (ii) the wholly owned subsidiaries of
Biglari Holdings Inc. in which control can be exercised. In evaluating whether we have a controlling interest in entities in which
we would consolidate, we consider the following: (1) for voting interest entities, we consolidate those entities in which we own a
majority of the voting interests; and (2) for limited partnership entities, we consolidate those entities if we are the general partner
of such entities and for which no substantive removal rights exist. The analysis as to whether to consolidate an entity is subject to
a significant amount of judgment. Some of the criteria considered include the determination as to the degree of control over an
entity by its various equity holders and the design of the entity. All intercompany accounts and transactions are eliminated in
consolidation.

Our interests in the investment partnerships are accounted for as equity method investments because of our retained limited partner
interest in the investment partnerships. The Company records gains from investment partnerships (inclusive of the investment
partnerships’ unrealized gains and losses on their securities) in the consolidated statement of earnings based on our proportional
ownership interest in the investment partnerships.

Impairment of Long-lived Assets
We review company-operated restaurants for impairment on a restaurant-by-restaurant basis when events or circumstances indicate
a possible impairment. We test for impairment by comparing the carrying value of the asset to the undiscounted future cash flows
expected to be generated by the asset. If the total estimated future cash flows are less than the carrying amount of the asset, the
carrying value is written down to the estimated fair value, and a loss is recognized in earnings. The future cash flows expected to
be generated by an asset requires significant judgment regarding future performance of the asset, fair market value if the asset were
to be sold, and other financial and economic assumptions.

Insurance Reserves
We currently self-insure a significant portion of expected losses under our workers’ compensation, general liability, directors’ and
officers’ liability, and auto liability insurance programs. For certain programs, we purchase reinsurance for individual and
aggregate claims that exceed predetermined limits. We record a liability for all unresolved claims and our estimates of incurred
but not reported (“IBNR”) claims at the anticipated cost to us. The liability estimate is based on information received from
insurance companies, combined with management’s judgments regarding frequency and severity of claims, claims development
history, and settlement practices. Significant judgment is required to estimate IBNR claims as parties have yet to assert a claim,
and therefore the degree to which injuries have been incurred and the related costs have not yet been determined. Additionally,
estimates about future costs involve significant judgment regarding legislation, case jurisdictions, and other matters.

Management’s Discussion and Analysis (continued)

Income Taxes
We record deferred tax assets or liabilities based on differences between financial reporting and tax basis of assets and liabilities
using currently enacted rates and laws that will be in effect when the differences are expected to reverse. We record deferred tax
assets to the extent we believe there will be sufficient future taxable income to utilize those assets prior to their expiration. To the
extent deferred tax assets would be unable to be utilized; we would record a valuation allowance against the unrealizable amount
and record that amount as a charge against earnings. Due to changing tax laws and state income tax rates, significant judgment is
required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future. We must
also make estimates about the sufficiency of taxable income in future periods to offset any deductions related to deferred tax assets
currently recorded. As of December 31, 2018, a change of one percentage point in an enacted tax rate would have an impact of
approximately $3,800 on net earnings.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized
upon ultimate resolution.

Goodwill and Other Intangible Assets
We are required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if
circumstances indicate impairment may have occurred. Goodwill impairment occurs when the estimated fair value of goodwill is
less than its carrying value. The valuation methodology and underlying financial information included in our determination of fair
value require significant management judgments. We use both market and income approaches to derive fair value. The judgments
in these two approaches include, but are not limited to, comparable market multiples, long-term projections of future financial
performance, and the selection of appropriate discount rates used to determine the present value of future cash flows. Changes in
such estimates or the application of alternative assumptions could produce significantly different results.

Leases
Restaurant operations lease certain properties under operating leases. Many of these lease agreements contain rent holidays, rent
escalation clauses and/or contingent rent provisions. Rent expense is recognized on a straight-line basis over the expected lease
term, including cancelable option periods when failure to exercise such options would result in an economic penalty. We use a
time period for straight-line rent expense calculation that equals or exceeds the time period used for depreciation. In addition, the
rent commencement date of the lease term is the earlier of the date when they become legally obligated for the rent payments or
the date when they take access to the grounds for build out. Accounting for leases involves significant management judgment.

Management’s Discussion and Analysis (continued)

Contractual Obligations
Our significant contractual obligations and commitments as of December 31, 2018 are shown in the following table.

Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements other than operating leases entered into in the normal course of business.

Recently Issued Accounting Pronouncements
For detailed information regarding recently issued accounting pronouncements and the expected impact on our consolidated
financial statements, see Note 1, “Summary of Significant Accounting Policies” in the accompanying notes to consolidated
financial statements included in Part II, Item 8 of this report on Form 10-K.

Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In
general, forward-looking statements include estimates of future revenues, cash flows, capital expenditures, or other financial items,
and assumptions underlying any of the foregoing. Forward-looking statements reflect management’s current expectations regarding
future events and use words such as “anticipate,” “believe,” “expect,” “may,” and other similar terminology. A forward-looking
statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may
not occur. Investors should not place undue reliance on the forward-looking statements, which speak only as of the date of this
report. These forward-looking statements are all based on currently available operating, financial, and competitive information and
are subject to various risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of
factors, many beyond our control, including, but not limited to, the risks and uncertainties described in Item 1A, Risk Factors set
forth above. We undertake no obligation to publicly update or revise them, except as may be required by law.

Less thanMore than1 year1 – 3 years3 – 5 years5 yearsTotal11,926$ 193,562$ -$ -$ 205,488$ 11,169 14,075 4,543 1,673 31,460 18,397 34,611 30,811 38,499 122,318 7,320 8,699 1,000 - 17,019 - - - 2,149 2,149 48,812$ 250,947$ 36,354$ 42,321$ 378,434$ (1)(2)(3)(4)(5)Operating leases (3) ..........................................Purchase commitments (4) ...............................Other long-term liabilities (5) ...........................Total .................................................................IncludesliabilitiesforNon-QualifiedDeferredCompensationPlan.Excludesourunrecognizedtaxbenefitsof$341asofDecember 31, 2018 because we cannot make a reliable estimate of the timing of cash payments.Payments due by periodContractual ObligationsIncludes principal and interest and assumes payoff of indebtedness at maturity date.Includes outstanding borrowings under the Credit Facility.Excludes amounts to be paid for contingent rents. Includes amounts to be paid for subleased properties.Includesagreementstopurchasegoodsorservicesthatareenforceableandlegallybindingonusandthatspecifyallsignificantterms. Excludes agreements that are cancelable without penalty.Long-term debt (1)(2) .......................................Capital leases and finance obligations (1) .........Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The majority of our investments are conducted through investment partnerships which generally hold common stocks. We also
hold marketable securities directly. Through investments in the investment partnerships we hold a concentrated position in the
common stock of Cracker Barrel Old Country Store, Inc. A significant decline in the general stock market or in the prices of major
investments may produce a large net loss and decrease in our consolidated shareholders’ equity. Decreases in values of equity
investments can have a materially adverse effect on our earnings and on consolidated shareholders’ equity.

We prefer to hold equity investments for very long periods of time so we are not troubled by short-term price volatility with respect
to our investments. Our interests in the investment partnerships are committed on a rolling 5-year basis, and any distributions upon
our withdrawal of funds will be paid out over two years (and may be paid in kind rather than in cash). Market prices for equity
securities are subject to fluctuation. Consequently, the amount realized in the subsequent sale of an investment may significantly
differ from the reported market value. A hypothetical 10% increase or decrease in the market price of our investments would result
in a respective increase or decrease in the fair market value of our investments of $59,581, along with a corresponding change in
shareholders’ equity of approximately 8%.

Borrowings on Steak n Shake’s credit facility bear interest at a rate per annum equal to a base rate or a Eurodollar rate (minimum
of 1%) plus an applicable margin. Interest on the term loan is based on a Eurodollar rate plus an applicable margin of 3.75% or on
the prime rate plus an applicable margin of 2.75%. At December 31, 2018, a hypothetical 100 basis point increase in short-term
interest rates would have an impact of approximately $1,400 on our net earnings.

We have had minimal exposure to foreign currency exchange rate fluctuations in 2018, 2017 and 2016.

Item 8.

Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Shareholders and the Board of Directors of Biglari Holdings Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Biglari Holdings Inc. and subsidiaries (the "Company") as of
December 31, 2018 and 2017, the related consolidated statements of earnings, comprehensive income, changes in shareholders’
equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively
referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United
States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 23, 2019, expressed an unqualified opinion on the Company's internal control over
financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of a Matter

As discussed in Note 3 and Note 12 to the consolidated financial statements, the Company and its subsidiaries have invested in
investment partnerships in the form of limited partnership interests. These investment partnerships represent related parties, and
such investments are subject to a rolling five-year lock up period under the terms of the respective partnership agreements. The
value of these investments reported in the Company’s consolidated balance sheets as of December 31, 2018 and 2017 totals
$557,480,000 and $566,021,000, respectively. Our opinion is not modified with respect to this matter.

/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
February 23, 2019

We have served as the Company's auditor since 2003.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Biglari Holdings Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Biglari Holdings Inc. and subsidiaries (the “Company”) as of
December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control —
Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018, of the Company, and our report
dated February 23, 2019, expressed an unqualified opinion on those financial statements and included an emphasis of a matter
paragraph relating to the Company’s investment in related party investment partnerships.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
February 23, 2019

BIGLARI HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

See accompanying Notes to Consolidated Financial Statements.

20182017AssetsCurrent assets:Cash and cash equivalents ............................................................................................ $ 48,557 $ 58,577 Investments ................................................................................................................ 33,860 23,289 Receivables ................................................................................................................ 15,743 16,284 Inventories ................................................................................................................. 7,537 7,268 Other current assets ..................................................................................................... 9,236 7,221 Total current assets ........................................................................................................ 114,933 112,639 Property and equipment .................................................................................................. 274,716 295,800 Goodwill ....................................................................................................................... 40,052 40,081 Other intangible assets .................................................................................................... 28,114 26,564 Investment partnerships .................................................................................................. 557,480 566,021 Other assets ................................................................................................................... 14,198 22,479 Total assets .................................................................................................................. $ 1,029,493 $ 1,063,584 Liabilities and shareholders’ equityLiabilitiesCurrent liabilities:Accounts payable and accrued expenses ........................................................................ $ 117,265 $ 128,744 Current portion of notes payable and other borrowings ................................................... 5,720 6,748 Total current liabilities .................................................................................................... 122,985 135,492 Long-term notes payable and other borrowings ................................................................. 240,001 256,994 Deferred taxes ............................................................................................................... 86,871 88,401 Other liabilities ............................................................................................................... 9,181 11,369 Total liabilities ............................................................................................................. 459,038 492,256 Shareholders’ equityCommon stock .............................................................................................................. 1,138 1,071 Additional paid-in capital ................................................................................................. 381,904 382,014 Retained earnings ........................................................................................................... 564,160 565,504 Accumulated other comprehensive loss ............................................................................ (2,516) (1,404)Treasury stock, at cost ................................................................................................... (374,231) (375,857)Biglari Holdings Inc. shareholders’ equity .................................................................... 570,455 571,328 Total liabilities and shareholders’ equity ...................................................................... $ 1,029,493 $ 1,063,584 December 31,

BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per-share amounts)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)

See accompanying Notes to Consolidated Financial Statements.

201820172016RevenuesRestaurant operations ......................................................................................775,690$ 807,153$ 817,914$ Insurance premiums and other .........................................................................27,628 24,943 22,997 Media advertising and other ............................................................................6,576 7,708 9,165 809,894 839,804 850,076 Cost and expensesRestaurant cost of sales ...................................................................................636,456 661,030 634,966 Insurance losses and underwriting expenses ....................................................20,831 19,724 17,484 Media cost of sales ..........................................................................................4,152 6,527 15,834 Selling, general and administrative ...................................................................132,909 130,808 127,259 Depreciation and amortization ........................................................................19,318 21,448 22,925 813,666 839,537 818,468 Other income (expenses)Interest expense ...............................................................................................(11,677) (11,040) (11,450) Interest on obligations under leases .................................................................(8,207) (9,082) (9,475) Investment partnership gains ..........................................................................40,411 6,965 135,580 Total other income (expenses) ......................................................................20,527 (13,157) 114,655 Earnings (loss) before income taxes ..............................................................16,755 (12,890) 146,263 Income tax expense (benefit) ...........................................................................(2,637) (62,961) 46,812 Net earnings .....................................................................................................19,392$ 50,071$ 99,451$ Earnings per share Net earnings per equivalent Class A share * .....................................................55.71$ 136.01$ 271.22$ Year EndedDecember 31,* Net earnings per equivalent Class B share outstanding are one-fifth of the equivalent Class A share or $11.14 for 2018, $27.20 for 2017 and $54.24 for 2016.201820172016Net earnings ....................................................................................................19,392$ 50,071$ 99,451$ Other comprehensive income:Reclassification of investment appreciation in net earnings .........................(73) - 306 Applicable income taxes ...............................................................................15 - (113) Net change in unrealized gains on investments .............................................- 284 568 Applicable income taxes ...............................................................................- (89) (211) Foreign currency translation .........................................................................(1,054) 1,985 (455) Other comprehensive income (loss), net ............................................................(1,112) 2,180 95 Total comprehensive income ..............................................................................18,280$ 52,251$ 99,546$ Year EndedDecember 31,

BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

See accompanying Notes to Consolidated Financial Statements.

201820172016Operating activitiesNet earnings ....................................................................................................19,392$ 50,071$ 99,451$ Adjustments to reconcile net earnings to operating cash flows:Depreciation and amortization ..................................................................19,318 21,448 22,925 Provision for deferred income taxes ..........................................................(2,153) (64,321) 38,485 Asset impairments and other non-cash expenses .....................................6,481 3,860 1,693 (Gain) loss on disposal of assets ..............................................................993 (777) 1,806 Investment (gains) losses (including contributions) ..................................(559) - 306 Investment partnership gains ....................................................................(40,411) (6,965) (135,886) Distributions from investment partnerships ............................................29,660 9,395 26,265 Changes in receivables and inventories .....................................................(359) (2,235) 4,280 Changes in other assets .............................................................................536 268 116 Changes in accounts payable and accrued expenses .................................(12,220) 15,036 3,908 Net cash provided by operating activities ..................................................20,678 25,780 63,349 Investing activitiesCapital expenditures .................................................................................(15,293) (8,034) (8,663) Purchases of perpetual lease rights ...........................................................(2,503) - (3,367) Proceeds from property and equipment disposals ...................................2,590 1,004 1,084 Distributions from investment partnerships ............................................39,040 - - Purchases of limited partner interests .......................................................(39,040) (3,707) (14,150) Purchases of investments ..........................................................................(58,642) (42,648) (35,784) Redemptions of fixed maturity securities .................................................48,558 41,837 32,085 Net cash used in investing activities ..........................................................(25,290) (11,548) (28,795) Financing activitiesPayments on revolving credit facility .......................................................(175) (202) (409) Principal payments on long-term debt ......................................................(2,200) (17,200) (9,277) Principal payments on direct financing lease obligations ..........................(5,204) (5,628) (5,609) Proceeds for exercise of stock options ......................................................49 30 64 Net cash used in financing activities .........................................................(7,530) (23,000) (15,231) Effect of exchange rate changes on cash ....................................................(78) 165 (38) Increase (decrease) in cash, cash equivalents and restricted cash ....................(12,220) (8,603) 19,285 Cash, cash equivalents and restricted cash at beginning of period ..................67,230 75,833 56,548 Cash, cash equivalents and restricted cash at end of period ...................55,010$ 67,230$ 75,833$ Year EndedDecember 31,

BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in thousands)

See accompanying Notes to Consolidated Financial Statements.

Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury Stock TotalBalance at December 31, 2015 ...................1,071$ 391,853$ 415,982$ (3,679)$ (353,855)$ 451,372$ Net earnings ...............................................99,451 99,451 Other comprehensive income, net .............95 95 Adjustment to treasury stock for holdings in investment partnerships ........(9,939) (9,103) (19,042) Exercise of stock options ...........................(8) 72 64 Balance at December 31, 2016 ...................1,071$ 381,906$ 515,433$ (3,584)$ (362,886)$ 531,940$ Net earnings ...............................................50,071 50,071 Other comprehensive income, net .............2,180 2,180 Adjustment to treasury stock for holdings in investment partnerships ........116 (13,009) (12,893) Exercise of stock options ...........................(8) 38 30 Balance at December 31, 2017....................1,071$ 382,014$ 565,504$ (1,404)$ (375,857)$ 571,328$ Net earnings ............................................19,392 19,392 Adoption of accounting standards ........90 90 Other comprehensive income, net .......(1,112) (1,112) Conversion of common stock ................67 (67) (20,826) 20,826 - Adjustment to treasury stock for holdings in investment partnerships (19,292) (19,292) Exercise of stock options ........................(43) 92 49 Balance at December 31, 2018 ..............1,138$ 381,904$ 564,160$ (2,516)$ (374,231)$ 570,455$

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years Ended December 31, 2018, 2017 and 2016)
(dollars in thousands, except share and per-share data)

Note 1. Summary of Significant Accounting Policies

Description of Business
Biglari Holdings Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities, including
media, property and casualty insurance, and restaurants. The Company’s largest operating subsidiaries are involved in the
franchising and operating of restaurants. Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive
Officer of Biglari Holdings and its major operating subsidiaries. The Company’s long-term objective is to maximize per-share
intrinsic value. All major operating, investment, and capital allocation decisions are made for the Company and its subsidiaries by
Mr. Biglari.

For accounting purposes, the April 30, 2018 transaction has been treated as a merger of entities under common control.
Accordingly, the consolidated financial position and results of operations of the Predecessor has been included in the consolidated
financial statements on a historical basis, except for earnings per share which is impacted by the issuance of the new common
shares.

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries including Steak n
Shake Inc. (“Steak n Shake”), Western Sizzlin Corporation (“Western Sizzlin”), Maxim Inc. (“Maxim”,) and First Guard Insurance
Company and its agency, 1st Guard Corporation (collectively “First Guard”). Intercompany accounts and transactions have been
eliminated in consolidation.

Cash, Cash Equivalents and Restricted Cash
Cash equivalents primarily consist of U.S. Government securities and money market accounts, all of which have original maturities
of three months or less. Cash equivalents are carried at fair value. In November 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash. ASU 2016-18
requires that the statement of cash flows include restricted cash with cash and cash equivalents when reconciling the beginning-
of-period and end-of-period amounts shown on statements of cash flows. In 2017, the Company deposited cash to satisfy required
collateral for casualty insurance.

Notes to Consolidated Financial Statements (continued)

Note 1. Summary of Significant Accounting Policies (continued)

Cash as reported on the statements of cash flows consists of the following.

Investments
Our investments consist of available-for-sale securities. Available-for-sale securities are carried at fair value with net unrealized
gains or losses reported in the statements of earnings. Realized gains and losses on disposals of investments are determined by
specific identification of cost of investments sold and are included in investment gains/losses, a component of other income.

Investment Partnerships
The Company holds a limited interest in The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively the “investment
partnerships”). Biglari Capital Corp. (“Biglari Capital”), an entity solely owned by Mr. Biglari, is the general partner of the
investment partnerships. Our interests in the investment partnerships are accounted as equity method investments because of our
retained limited partner interests. The Company records investment partnership gains (inclusive of the investment partnerships’
unrealized gains and losses on their securities) as a component of other income based on our proportional ownership interest in the
partnerships. The investment partnerships are for purposes of generally accepted accounting principles (“GAAP”), investment
companies under the AICPA Audit and Accounting Guide Investment Companies.

Concentration of Equity Price Risk
The majority of our investments are conducted through investment partnerships which generally hold common stocks. We also
hold marketable securities directly. Through the investment partnerships we hold a concentrated position in the common stock of
Cracker Barrel Old Country Store, Inc. A significant decline in the general stock market or in the prices of major investments may
have a materially adverse effect on our earnings and on consolidated shareholders’ equity.

Receivables
Our accounts receivable balance consists primarily of franchisee, customer, and other receivables. We carry our accounts receivable
at cost less an allowance for doubtful accounts, which is based on a history of past write-offs and collections and current credit
conditions. Allowance for doubtful accounts was $3,901 and $2,298 at December 31, 2018 and 2017, respectively.

Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or market, and consist primarily of restaurant food items and
supply inventory.

Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are
recognized on the straight-line method over the estimated useful lives of the assets (10 to 30 years for buildings and land
improvements, and 3 to 10 years for equipment). Leasehold improvements are amortized on the straight-line method over the
shorter of the estimated useful lives of the improvements or the term of the related leases. Interest costs associated with the
construction of new restaurants are capitalized. Major improvements are also capitalized while repairs and maintenance are
expensed as incurred. We review our long-lived assets whenever events or changes in circumstances indicate that their carrying
amounts may not be recoverable. For purposes of this assessment, assets are evaluated at the lowest level for which there are
identifiable cash flows. If the future undiscounted cash flows of an asset are less than the recorded value, an impairment is recorded
for the difference between the carrying value and the estimated fair value of the asset.

201820172016Cash and cash equivalents ..............................................................................48,557$ 58,577$ 75,808$ Restricted cash included in other long-term assets .............................................6,453 8,653 25 Cash, cash equivalents and restricted cash ........................................................55,010$ 67,230$ 75,833$ December 31,

Notes to Consolidated Financial Statements (continued)

Note 1. Summary of Significant Accounting Policies (continued)

Goodwill and Other Intangible Assets
Goodwill and indefinite life intangible assets are not amortized, but are tested for potential impairment on an annual basis, or more
often if events or circumstances change that could cause goodwill or indefinite life intangible assets to become impaired. Other
purchased intangible assets are amortized over their estimated useful lives, generally on a straight-line basis. We perform reviews
for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying value of an asset may
not be recoverable. An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset
and its eventual disposition are less than its carrying value. When an impairment is identified, we reduce the carrying value of the
asset to its estimated fair value. No impairments were recorded on goodwill or intangible assets during 2018, 2017 or 2016. Refer
to Note 6 for information regarding our goodwill and other intangible assets.

Operating Leases
The Company leases certain property under operating leases. Many of these lease agreements contain rent holidays, rent escalation
clauses and/or contingent rent provisions. Rent expense is recognized on a straight-line basis over the expected lease term,
including cancellable option periods when failure to exercise such options would result in an economic penalty. In addition, the
rent commencement date of the lease term is the earlier due date when we become legally obligated for the rent payments, the date
when we take access to the property, or the grounds for build out.

Common Stock
As a result of the transaction on April 30, 2018, the Predecessor’s common stock converted into the right to receive shares of Class
A common stock and Class B common stock. The treasury shares outstanding on April 30, 2018, were retired and not converted
into Class A and Class B common stock. The following table presents shares authorized, issued and outstanding.

On an equivalent Class A common stock basis, there were 620,592, 620,284 and 620,158 shares outstanding as of December 31,
2018, 2017 and 2016, respectively.

Earnings Per Share
Earnings per share of common stock is based on the weighted average number of shares outstanding during the year. The shares
of Company stock attributable to our limited partner interest in the investment partnerships — based on our proportional ownership
during this period — are considered treasury stock on the consolidated balance sheet and thereby deemed not to be included in the
calculation of weighted average common shares outstanding. However, these shares are legally outstanding.

The Company has applied the “two-class method” of computing earnings per share as prescribed in ASC 260, “Earnings Per
Share.” The issuance of dual class common stock on April 30, 2018 is applied on a retrospective basis for the calculation of
earnings per share. Accordingly, earnings per share for 2018, 2017 and 2016 are impacted by the issuance of the new common
shares. The equivalent Class A common stock applied for computing earnings per share excludes the proportional shares of Biglari
Holdings’ stock held by the investment partnerships. The equivalent Class A common stock for the earnings per share calculation
was 348,108, 368,150 and 366,678 for 2018, 2017 and 2016, respectively. There are no dilutive securities outstanding.

Class AClass BDecember 31, 2017December 31, 2016Common stock authorized ....................................................500,000 10,000,000 2,500,000 2,500,000 Common stock issued ...........................................................206,8642,068,6402,142,2022,142,202Treasury stock held by the Company ..................................- - (74,589)(75,009)Outstanding shares ................................................................206,8642,068,6402,067,6132,067,193December 31, 2018

Notes to Consolidated Financial Statements (continued)

Note 1. Summary of Significant Accounting Policies (continued)

Revenue Recognition
Restaurant operations

Restaurant operations revenues were as follows.

In accordance with ASC 606-10-50, the Company disaggregates revenue from contracts with customers. The only Company
segment that was affected significantly by ASC 606 was restaurants. The Company’s accounting policies and practices related to
restaurant operations revenues consist of the following under ASC 606.

Net sales were composed of retail sales of food through company-owned stores. Company-owned store revenues are recognized,
net of discounts and sales taxes, when our obligation to perform is satisfied at the point of sale. Sales taxes related to these sales
are collected from customers and remitted to the appropriate taxing authority and are not reflected in the Company’s consolidated
statements of income as revenue.

Franchise royalties and fees are composed of royalties and fees from Steak n Shake and Western Sizzlin franchisees. Royalties are
based upon a percentage of sales of the franchise restaurant and are recognized as earned. Franchise royalties are billed on a
monthly basis. Initial franchise fees when a new restaurant opens or at the start of a new franchise term are recorded as deferred
revenue when received and recognized as revenue over the term of the franchise agreement. This represents a change in
methodology under the January 1, 2018 adoption of ASC 606 for we have historically recognized initial franchise fees upon the
opening of a franchise restaurant. Comparative prior periods have not been adjusted.

During the year ended December 31, 2018, restaurant operations recognized $3,096 in revenue related to initial franchise fees. As
of December 31, 2018 and January 1, 2018, restaurant operations had deferred revenue recorded in accrued expenses related to
franchise fees of $9,075 and $10,581, respectively. Restaurant operations expects to recognize approximately $649 in 2019 and
the balance in the years 2020 through 2039.

Our advertising arrangements with franchisees are reported in franchise royalties and fees. This represents a change in
methodology under the adoption of ASC 606 as we have historically applied advertising funds from the franchisees directly to
various marketing programs. The new guidance requires the Company to recognize the marketing contributions received from
franchisees as revenue and record a corresponding increase to marketing expense as the funds are applied to marketing programs
as required by our franchise agreements.

During the year ended December 31, 2018, restaurant operations recognized $9,675 in revenue related to franchisee advertising
fees. As of December 31, 2018 and January 1, 2018, restaurant operations had deferred revenue recorded in accrued expenses
related to franchisee advertising fees of $2,255 and $2,064, respectively. Restaurant operations expects to recognize approximately
$1,128 of deferred revenue during 2019 and the balance in 2020.

Restaurant operations sells gift cards to customers which can be redeemed for retail food sales within our stores. Gift cards are
recorded as deferred revenue when issued and are subsequently recorded as net sales upon redemption. Restaurant operations
estimates breakage related to gift cards when the likelihood of redemption is remote. This estimate utilizes historical trends based
on the vintage of the gift card. Breakage on gift cards is recorded as other revenue in proportion to the rate of gift card redemptions
by vintage. This represents a change in the methodology, under the adoption of ASC 606, used to estimate breakage for we have
historically recognized breakage for the portion of the gift card balances that remained outstanding following 48 months of
issuance.

For the year ended December 31, 2018, restaurant operations recognized $27,081 of revenue from gift card redemptions. As of
December 31, 2018 and January 1, 2018, restaurant operations had deferred revenue recorded in accrued expenses related to
unredeemed gift cards of $22,685 and $20,968, respectively. The Company expects to recognize approximately $18,132 in 2019
and the balance in the years 2020 through 2022.

201820172016Net sales ............................................................................................................740,922$ 781,856$ 795,322$ Franchise royalties and fees ...............................................................................30,998 20,773 18,794 Other ..................................................................................................................3,770 4,524 3,798 775,690$ 807,153$ 817,914$

Notes to Consolidated Financial Statements (continued)

Note 1. Summary of Significant Accounting Policies (continued)

Insurance premiums and commissions
Insurance premiums are earned over the terms of the related policies. Expenses incurred in connection with acquiring new insurance
business, including acquisition costs, are charged to operations as incurred. Premiums earned are stated net of amounts ceded to
reinsurer.

Media advertising and other
Magazine subscription and advertising revenues are recognized at the magazine cover date. The unearned portion of magazine
subscriptions is deferred until the magazine’s cover date, at which time a proportionate share of the gross subscription price is
recognized as revenues, net of any commissions paid to subscription agents. Also included in subscription revenues are revenues
generated from single-copy sales of magazines through retail outlets such as newsstands, supermarkets, convenience stores and
drugstores and on certain digital devices, which may or may not result in future subscription sales. Revenues from retail outlet
sales are recognized based on gross sales less a provision for estimated returns. License revenue is recognized when earned. We
derive value and revenues from intellectual property assets through a range of licensing and business activities, including licensing
and syndication of our trademarks and copyrights in the United States and internationally.

Restaurant Cost of Sales
Cost of sales includes the cost of food, restaurant operating costs and restaurant rent expense. Cost of sales excludes depreciation
and amortization, which is presented as a separate line item on the consolidated statement of earnings.

Insurance Losses and Underwriting Expenses
Liabilities for estimated unpaid losses and loss adjustment expenses with respect to claims occurring on or before the balance sheet
date are established under insurance contracts issued by our insurance subsidiaries. Such estimates include provisions for reported
claims or case estimates, provisions for incurred but not reported claims and legal and administrative costs to settle claims. The
estimates of unpaid losses and amounts recoverable under reinsurance are established and continually reviewed by using a variety
of actuarial, statistical and analytical techniques. Reinsurance contracts do not relieve the ceding company of its obligations to
indemnify policyholders with respect to the underlying insurance contracts. Liabilities for insurance losses of $1,891 and $1,907
are included in accrued expenses in the consolidated balance sheet as of December 31, 2018 and 2017, respectively.

Marketing Expense
Advertising costs are charged to expense at the later of the date the expenditure is incurred or the date the promotional item is first
communicated. Marketing expense is included in selling, general and administrative expenses in the consolidated statement of
earnings.

Insurance Reserves
We self-insure a significant portion of expected losses under our workers’ compensation, general liability, auto, directors’ and
officers’ and medical liability insurance programs, and record a reserve for our estimated losses on all unresolved open claims and
our estimated incurred but not reported claims at the anticipated cost to us. Insurance reserves are recorded in accrued expenses in
the consolidated balance sheet.

Savings Plans
Several of our subsidiaries also sponsor deferred compensation and defined contribution retirement plans, such as 401(k) or profit
sharing plans. Employee contributions to the plans are subject to regulatory limitations and the specific plan provisions. Some of
the plans allow for discretionary contributions as determined by management. Employer contributions expensed with respect to
these plans were not material.

Foreign Currency Translation
The Company has certain subsidiaries located in foreign jurisdictions. For subsidiaries whose functional currency is other than the
U.S. dollar, the translation of functional currency statements to U.S. dollar statements uses end-of-period exchange rates for assets
and liabilities, weighted average exchange rates for revenue and expenses, and historical rates for equity. The resulting currency
translation adjustment is recorded in accumulated other comprehensive income, as a component of equity.

Notes to Consolidated Financial Statements (continued)

Note 1. Summary of Significant Accounting Policies (continued)

Use of Estimates
Preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could
differ from the estimates.

New Accounting Standards
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles - Goodwill and Other:
Simplifying the Test for Goodwill Impairment. ASU 2017-04 provides for the elimination of Step 2 from the goodwill impairment
test. If impairment charges are recognized, the amount recorded will be the amount by which the carrying amount exceeds the
reporting unit’s fair value with certain limitations. The ASU is effective for public companies for annual periods, and interim
periods within those annual periods, beginning after December 15, 2019. The Company adopted ASU 2017-04 on January 1, 2018.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash. ASU 2016-18 requires that the
statement of cash flows include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-
of-period amounts shown on statements of cash flows. For public entities, this standard is effective for fiscal years beginning after
December 15, 2017. This standard should be applied retrospectively and early adoption is permitted, including adoption in an
interim period. We adopted this standard in 2017 and have retroactively adjusted the consolidated statements of cash flows for all
periods presented.

In October 2016, the FASB issued ASU 2016-17, Interests Held through Related Parties That Are under Common Control. ASU
2016-17 amends the consolidation guidance in ASU 2015-02 regarding the treatment of indirect interests held through related
parties that are under common control. The adoption of ASU 2016-17 did not have a material effect on our consolidated financial
statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments. The objective of the update is to reduce diversity in how certain transactions are classified in the statement of
cash flows. The amendments in this update are effective for financial statements issued for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. The adoption of ASU 2016-15 did not have a material effect on our
consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial
Instruments. ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale
debt securities. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP;
however, ASU 2016-13 will require that credit losses be presented as an allowance rather than as a write-down. The amendments
in this update are effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods
within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its
consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires a lessee to recognize lease assets and lease
liabilities on the balance sheet, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for annual
and interim periods beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued ASU 2018-
11, Leases (Topic 842): Targeted Improvements, which provides an additional transition method with which to adopt the new
leases standard. Most prominent among the changes in the standard is the recognition of right of use assets and lease liabilities by
lessees for those leases classified as operating leases under current GAAP. Leases will be classified as either finance or operating,
with classification affecting the pattern of expense recognition in the consolidated statement of earnings. Under the new standard,
disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty
of cash flows arising from leases.

Notes to Consolidated Financial Statements (continued)

Note 1. Summary of Significant Accounting Policies (continued)

The guidance permits the use of a modified retrospective approach, which requires an entity to recognize and measure leases
existing at, or entered into after, the beginning of the earliest comparative period presented. Alternatively, the guidance permits a
“Comparatives Under 840 Option” that changes the date of initial application to the beginning of the period of adoption. We will
be electing the Comparatives Under 840 Option in which we will apply ASC 840 to all comparative periods, including disclosures,
and recognize the effects of applying ASC 842 as a cumulative-effect adjustment to retained earnings as of the effective date
(January 1, 2019). We will elect the package of practical expedients permitted under the transition guidance within the new
standard, which among other things, allows us to carryforward the historical lease classification. In addition, we elected certain
practical expedients and accounting policies, including an accounting policy election to keep leases with an initial term of 12
months or less off of the balance sheet. We will recognize those lease payments in the consolidated statements of earnings on a
straight-line basis over the lease term.

The standard will have a material impact on our consolidated balance sheets, but will not have a material impact on our consolidated
statements of earnings and statements of cash flow. The most significant impact will be the recognition of right of use assets and
lease liabilities for operating leases. Although our accounting for existing capital leases remains substantially unchanged, the
adoption of the standard will result in the recognition of right of use assets and lease liabilities for operating leases of approximately
$90,000 as of January 1, 2019.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). On January 1, 2018, we
adopted FASB accounting standards codification Topic 606 (“ASC 606”). In accordance with ASC 606, we changed certain
characteristics of our revenue recognition accounting policy as described below. ASC 606 was applied using the modified
retrospective method, where the cumulative effect of the initial application is recognized as an adjustment to opening retained
earnings at January 1, 2018. Comparative prior periods have not been adjusted.

The following table summarizes the impact of the adoption of ASC 606 on revenues, operating expenses and net earnings for 2018.

The impact of ASC 606 on the Company’s balance sheet as of December 31, 2018 was not material. The cumulative change in
retained earnings as of January 1, 2018 was $90. Upon adoption of ASC 606, the Company changed its restaurant operations
accounting policies for the recognition of franchise fees, recording of advertising arrangements, and recognition of gift card
revenue. The adoption of ASC 606 did not have any significant impact on our insurance or media/licensing businesses.

Note 2. Investments

Available for sale investments were $33,860 and $23,289 as of December 31, 2018 and 2017, respectively. Investments in equity
securities and a related derivative position of $4,463 are included in other current assets as of December 31, 2018 and in other
assets as of December 31, 2017. The investments are recorded at fair value.

As ReportedAdjustmentsfor the Adoption ofASC 606Amounts withoutAdoption ofASC 606Statements of EarningsRevenues Restaurant operations Net sales ....................................................................................................740,922$ -$ 740,922$ Franchise royalties and fees .......................................................................30,998 9,417 21,581 Other ..........................................................................................................3,770 (463) 4,233 Selling, general and administrative ...................................................................132,909 9,689 123,220 Earnings before income taxes ...........................................................................16,755 (735) 17,490 Income tax expense (benefit) ...........................................................................(2,637) (184) (2,453) Net earnings .....................................................................................................19,392 (551) 19,943

Notes to Consolidated Financial Statements (continued)

Note 3. Investment Partnerships

The Company reports on the limited partnership interests in investment partnerships under the equity method of accounting. We
record our proportional share of equity in the investment partnerships but exclude Company common stock held by said
partnerships. The Company’s pro-rata share of its common stock held by the investment partnerships is recorded as treasury stock
even though they are legally outstanding. The Company records gains/losses from investment partnerships (inclusive of the
investment partnerships’ unrealized gains and losses on their securities) in the consolidated statements of earnings based on our
carrying value of these partnerships. The fair value is calculated net of the general partner’s accrued incentive fees. Gains and
losses on Company common stock included in the earnings of these partnerships are eliminated because they are recorded as
treasury stock.

Biglari Capital is the general partner of the investment partnerships and is an entity solely owned by Mr. Biglari.

The fair value and adjustment for Company common stock held by the investment partnerships to determine carrying value of our
partnership interest is presented below.

The Company recognized a pre-tax loss of $306 ($193 net of tax) on a contribution of $5,682 in securities to investment
partnerships during 2016.

The carrying value of the investment partnerships net of deferred taxes is presented below.

The Company’s proportionate share of Company stock held by investment partnerships at cost is $374,231 and $354,939 at
December 31, 2018 and 2017, respectively, and is recorded as treasury stock.

The carrying value of the partnership interest approximates fair value adjusted by the value of held Company stock. Fair value is
according to our proportional ownership interest of the fair value of investments held by the investment partnerships. The fair value
measurement is classified as level 3 within the fair value hierarchy.

Fair ValueCompany Common StockCarryingValuePartnership interest at December 31, 2015 ........................................................734,668$ 262,979$ 471,689$ Investment partnership gains .............................................................................248,935 113,049 135,886 Distributions (net of contributions of $19,832) .................................................(10,896) (10,896) Increase in proportionate share of Company stock held ....................................19,042 (19,042) Partnership interest at December 31, 2016 ........................................................972,707$ 395,070$ 577,637$ Investment partnership gains (losses) ................................................................(41,740) (48,705) 6,965 Distributions (net of contributions of $3,707) ...................................................(5,688) (5,688) Increase in proportionate share of Company stock held ....................................12,893 (12,893) Partnership interest at December 31, 2017 ........................................................925,279$ 359,258$ 566,021$ Investment partnership gains (losses) ...........................................................(180,517) (220,928) 40,411 Distributions (net of reinvestments of $39,040)............................................(29,660) (29,660) Increase in proportionate share of Company stock held .............................19,292 (19,292) Partnership interest at December 31, 2018 ...................................................715,102$ 157,622$ 557,480$ 20182017Carrying value of investment partnerships ....................................................................................557,480$ 566,021$ Deferred tax liability related to investment partnerships ...............................................................(92,703) (95,309) Carrying value of investment partnerships net of deferred taxes ...................................................464,777$ 470,712$ December 31,

Notes to Consolidated Financial Statements (continued)

Note 3. Investment Partnerships (continued)

Gains/losses from investment partnerships recorded in the Company’s consolidated statements of earnings are presented below.

On December 31 of each year, the general partner of the investment partnerships, Biglari Capital, will earn an incentive reallocation
fee for the Company’s investments equal to 25% of the net profits above an annual hurdle rate of 6% over the previous high-water
mark. Our policy is to accrue an estimated incentive fee throughout the year. The total incentive reallocation from Biglari Holdings
to Biglari Capital includes gains on the Company’s common stock. Gains and losses on the Company’s common stock and the
related incentive reallocations are eliminated in our financial statements. Our investments in these partnerships are committed on
a rolling 5-year basis.

There were no incentive reallocations from Biglari Holdings to Biglari Capital during 2018 and 2017. The incentive reallocation
on December 31, 2016 was $31,628 (including $11,514 for gains on Company common stock).

Summarized financial information for The Lion Fund, L.P. and The Lion Fund II, L.P. is presented below.

Revenue in the above summarized financial information of the investment partnerships includes investment income and unrealized
gains and losses on investments.

Note 4. Other Current Assets

Other current assets include the following.

201820172016Gains from investment partnerships ................................................................40,411$ 6,965$ 135,886$ Loss on contribution of securities to investment partnerships ........................- - (306) Investment partnership gains ...........................................................................40,411 6,965 135,580 Tax expense (benefit) ........................................................................................7,171 (4,115) 44,248 Contribution to net earnings .............................................................................33,240$ 11,080$ 91,332$ Lion FundLion Fund IITotal assets as of December 31, 2018 ................................................................................107,207$ 901,750$ Total liabilities as of December 31, 2018 ..........................................................................447$ 202,770$ Revenue for the year ended December 31, 2018 ..............................................................(92,093)$ (120,431)$ Earnings for the year ended December 31, 2018 ..............................................................(92,159)$ (130,193)$ Biglari Holdings’ ownership interest ................................................................................65.9%92.2%Total assets as of December 31, 2017 ....................................................................................203,560$ 1,060,737$ Total liabilities as of December 31, 2017 ...............................................................................157$ 199,974$ Revenue for the year ended December 31, 2017 ....................................................................(13,322)$ (25,283)$ Earnings for the year ended December 31, 2017 ....................................................................(13,383)$ (35,740)$ Biglari Holdings’ ownership interest ......................................................................................64.3%92.3%Total assets as of December 31, 2016 ....................................................................................221,676$ 1,109,465$ Total liabilities as of December 31, 2016 ...............................................................................2,694$ 201,460$ Revenue for the year ended December 31, 2016 ....................................................................37,098$ 282,242$ Earnings for the year ended December 31, 2016 ....................................................................36,933$ 273,736$ Biglari Holdings’ ownership interest ......................................................................................63.6%91.8%Equity in Investment Partnerships20182017Investment in equity security and related derivative position ..............................................4,463$ -$ Deferred commissions on gift cards sold by third parties .....................................................3,218 3,946 Prepaid contractual obligations ..............................................................................................1,555 3,068 Assets held for sale ................................................................................................................- 207 Other current assets ...............................................................................................................9,236$ 7,221$ December 31,

Notes to Consolidated Financial Statements (continued)

Note 5. Property and Equipment

Property and equipment is composed of the following.

Depreciation and amortization expense for property and equipment for 2018, 2017 and 2016 was $18,646, $20,706 and $21,635,
respectively.

The Company recorded an impairment to long-lived assets of $5,677, $1,789 and $695 during 2018, 2017 and 2016, respectively.
The fair value of the long-lived assets was determined based on Level 2 inputs using a discounted cash flow model and quoted
prices for the properties. The fair value of the assets impaired was not material for any of the applicable periods.

Note 6. Goodwill and Other Intangible Assets

Goodwill
Goodwill consists of the excess of the purchase price over the fair value of the net assets acquired in connection with business
acquisitions.

A reconciliation of the change in the carrying value of goodwill is as follows.

We are required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if
circumstances indicate impairment may have occurred. Goodwill impairment occurs when the estimated fair value of goodwill is
less than its carrying value. The valuation methodology and underlying financial information included in our determination of fair
value require significant management judgments. We use both market and income approaches to derive fair value. The judgments
in these two approaches include, but are not limited to, comparable market multiples, long-term projections of future financial
performance, and the selection of appropriate discount rates used to determine the present value of future cash flows. Changes in
such estimates or the application of alternative assumptions could produce significantly different results. No impairment charges
for goodwill were recorded in 2018, 2017 or 2016.

20182017Land ................................................................................................................................146,015$ 156,506$ Buildings ..........................................................................................................................142,658 152,610 Land and leasehold improvements ......................................................................................158,938 162,652 Equipment .......................................................................................................................201,738 203,145 Construction in progress ....................................................................................................1,703 1,782 651,052 676,695 Less accumulated depreciation and amortization ..................................................................(376,336) (380,895) Property and equipment, net ..............................................................................................274,716$ 295,800$ December 31,RestaurantsOtherTotalGoodwill at December 31, 2015 .............................................................................28,109$ 11,913$ 40,022$ Change in foreign exchange rates during 2016 .........................................................(19) - (19) Goodwill at December 31, 2016 .............................................................................28,090$ 11,913$ 40,003$ Change in foreign exchange rates during 2017 .........................................................78 - 78 Goodwill at December 31, 2017 .............................................................................28,168$ 11,913$ 40,081$ Change in foreign exchange rates during 2018 ....................................................(29) - (29) Goodwill at December 31, 2018 ...........................................................................28,139$ 11,913$ 40,052$

Notes to Consolidated Financial Statements (continued)

Note 6. Goodwill and Other Intangible Assets (continued)

Other Intangible Assets
Other intangible assets are composed of the following.

Intangible assets subject to amortization consist of franchise agreements connected with the purchase of Western Sizzlin as well
as rights to favorable leases related to prior acquisitions. These intangible assets are being amortized over their estimated weighted
average of useful lives ranging from eight to twelve years.

Amortization expense for 2018, 2017 and 2016 was $562, $567 and $571, respectively. The Company’s intangible assets with
definite lives will fully amortize in 2020.

During 2018, the Company purchased lease rights totaling $2,503. During 2016, the Company purchased lease rights totaling
$3,367 and recorded an additional $1,657 indefinite life asset associated with the tax effect of the asset acquisition.

Note 7. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses include the following.

Note 8. Other Liabilities

Other liabilities include the following.

Gross carrying amountAccumulated amortizationTotalGross carrying amountAccumulated amortizationTotalFranchise agreement ............................5,310$ (4,647)$ 663$ 5,310$ (4,116)$ 1,194$ Other ...................................................810 (774) 36 810 (743) 67 Total ....................................................6,120 (5,421) 699 6,120 (4,859) 1,261 Intangible assets with indefinite lives:Trade names ........................................15,876 - 15,876 15,876 - 15,876 Other assets with indefinite lives ........11,539 - 11,539 9,427 - 9,427 Total intangible assets .........................33,535$ (5,421)$ 28,114$ 31,423$ (4,859)$ 26,564$ 20182017December 31,20182017Accounts payable ...........................................................................................................................41,967$ 40,616$ Gift card liability ............................................................................................................................22,685 27,436 Salaries, wages, and vacation ..........................................................................................................13,107 22,875 Deferred revenue .............................................................................................................................11,681 9,522 Taxes payable .................................................................................................................................11,214 10,571 Workers' compensation and other self-insurance accruals ..............................................................8,394 9,047 Other ...............................................................................................................................................8,217 8,677 Accounts payable and accrued expenses ........................................................................................117,265$ 128,744$ December 31, 20182017Deferred rent expense ...............................................................................................................6,468$ 6,726$ Other .......................................................................................................................................2,713 4,643 Other liabilities ..........................................................................................................................9,181$ 11,369$ December 31,

Notes to Consolidated Financial Statements (continued)

Note 9. Income Taxes

The components of the provision for income taxes consist of the following.

On December 22, 2017, new federal income tax legislation, the Tax Cuts and Jobs Act (“Act”), was signed into law. Effective
January 1, 2018, the U.S. corporate federal statutory income tax rate was reduced from 35.0% to 21.0% and required re-
measurement of deferred balances to the new statutory rates as of December 31, 2017.

The Act also imposed a mandatory one-time transition tax on undistributed international earnings. We do not expect to have any
additional tax liability related to a transition tax. The Company did not have a net tax expense or benefit on income from
international operations. Earnings (losses) before income taxes derived from domestic operations during 2018, 2017 and 2016
were $21,700, $(6,230) and $154,520, respectively. Losses before income taxes derived from international operations during 2018,
2017 and 2016 were $4,945, $6,660 and $8,257, respectively.

As of December 31, 2018, we had $341 of unrecognized tax benefits, including $43 of interest and penalties, which are included
in other long-term liabilities in the consolidated balance sheet. As of December 31, 2017, we had $357 of unrecognized tax benefits,
including $29 of interest and penalties, which are included in other long-term liabilities in the consolidated balance sheet. Our
continuing practice is to recognize interest expense and penalties related to income tax matters in income tax expense. The
unrecognized tax benefits of $341 would impact the effective income tax rate if recognized. Adjustments to the Company’s
unrecognized tax benefit for gross increases for the current period tax position, gross decreases for prior period tax positions and
the lapse of statute of limitations during 2018, 2017 and 2016 were not significant.

We file income tax returns which are periodically audited by various foreign, federal, state, and local jurisdictions. With few
exceptions, we are no longer subject to federal, state, and local tax examinations for fiscal years prior to 2015. We believe we have
certain state income tax exposures related to fiscal years 2014 through 2018. Because of the expiration of the various state statutes
of limitations for these fiscal years, it is possible that the total amount of unrecognized tax benefits will decrease by approximately
$14 within 12 months.

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected
to reverse.

201820172016Current:Federal .............................................................................................................(1,688)$ 544$ 6,329$ State .................................................................................................................1,204 816 1,998 Deferred ...........................................................................................................(2,153) (64,321) 38,485 Total income taxes ..............................................................................................(2,637)$ (62,961)$ 46,812$ Reconciliation of effective income tax:Tax at U.S. statutory rates ..............................................................................3,519$ (4,512)$ 51,227$ State income taxes, net of federal benefit .........................................................741 259 3,332 Tax rate changes ...............................................................................................(1,342) (51,707) - Federal income tax credits ................................................................................(4,587) (3,158) (4,692) Dividends received deduction ..........................................................................(2,142) (6,304) (5,851) Valuation allowance .........................................................................................658 742 905 Foreign tax rate differences ..............................................................................349 1,598 2,249 Other ................................................................................................................167 121 (358) Total income taxes ..............................................................................................(2,637)$ (62,961)$ 46,812$

Notes to Consolidated Financial Statements (continued)

Note 9. Income Taxes (continued)

Our deferred tax assets and liabilities consist of the following.

Receivables on the balance sheet include income taxes receivable of $2,022 and $751 as of December 31, 2018 and 2017,
respectively. Income taxes paid during 2018, 2017 and 2016 were $810, $3,211 and $6,961, respectively. Income tax refunds
during 2018, 2017 and 2016 were $8, $0 and $233, respectively.

Note 10. Notes Payable and Other Borrowings

Notes payable and other borrowings include the following.

20182017Deferred tax assets:Insurance reserves ........................................................................................................................1,816$ 2,011$ Compensation accruals ................................................................................................................677 729 Gift card accruals .........................................................................................................................2,515 3,149 Net operating loss credit carryforward ........................................................................................5,547 5,273 Valuation allowance on net operating losses ...............................................................................(4,978) (5,031) Income tax credit carryforward ....................................................................................................4,965 5,707 Other ............................................................................................................................................953 629 Total deferred tax assets ..............................................................................................................11,495 12,467 Deferred tax liabilities:Investments .................................................................................................................................92,743 95,324 Fixed asset basis difference ..........................................................................................................934 554 Goodwill and intangibles .............................................................................................................4,689 4,990 Total deferred tax liabilities .........................................................................................................98,366 100,868 Net deferred tax liability .................................................................................................................(86,871)$ (88,401)$ December 31,20182017Current portion of notes payable and other borrowingsNotes payable .............................................................................................................................2,200$ 2,200$ Unamortized original issue discount ...........................................................................................(334) (321) Unamortized debt issuance costs ................................................................................................(609) (585) Obligations under leases ..............................................................................................................4,463 5,279 Western revolver .........................................................................................................................- 175 Total current portion of notes payable and other borrowings ....................................................5,720$ 6,748$ Long-term notes payable and other borrowingsNotes payable .............................................................................................................................181,498$ 183,698$ Unamortized original issue discount ...........................................................................................(438) (772) Unamortized debt issuance costs ................................................................................................(796) (1,405) Obligations under leases ..............................................................................................................59,737 75,473 Total long-term notes payable and other borrowings .................................................................240,001$ 256,994$ December 31,

Notes to Consolidated Financial Statements (continued)

Note 10. Notes Payable and Other Borrowings (continued)

The credit agreement includes customary affirmative and negative covenants and events of default. Steak n Shake’s credit facility
contains restrictions on its ability to pay dividends to Biglari Holdings.

Western Sizzlin Revolver
As of December 31, 2018, Western Sizzlin had no debt outstanding under the revolver.

Expected principal payments for notes payable as of December 31, 2018, are as follows.

2019 .................... $
2020 ....................
2021 ....................
Total .................... $

2,200
2,200
179,298
183,698

The fair value of long-term debt, excluding capitalized lease obligations, was approximately $147,000 at December 31, 2018. The
fair value of our debt was estimated based on quoted market prices. The fair value was determined to be a Level 3 fair value
measurement.

Interest
Interest paid on debt and obligations under leases are as follows.

Note 11. Leased Assets and Lease Commitments

We lease certain physical facilities under non-cancelable lease agreements. These leases require the payment of real estate taxes,
insurance and maintenance costs. Certain leased facilities, which are no longer operated but are subleased to third parties or
franchisees, are classified below as non-operating properties. Minimum future rental payments for non-operating properties have
not been reduced by minimum sublease rentals of $6,850 related to operating leases receivable under non-cancelable subleases.
The property and equipment cost related to finance obligations and capital leases as of December 31, 2018 is as follows: $56,311
of buildings, $45,017 of land, $21,351 of land and leasehold improvements, $1,952 of equipment and $64,036 of accumulated
depreciation.

201820172016Interest paid on debt .........................................................................................10,655$ 9,969$ 10,508$ Interest paid on obligations under leases ...........................................................8,207$ 9,132$ 9,475$

Notes to Consolidated Financial Statements (continued)

Note 11. Leased Assets and Lease Commitments (continued)

On December 31, 2018, obligations under non-cancelable finance obligations, capital leases, and operating leases (excluding real
estate taxes, insurance and maintenance costs) require the following minimum future rental payments.

Rent expense is presented below.

Non-cancellable finance obligations were created when the Company entered into certain build-to-suit or sale leaseback
arrangements. As a result of continuing involvement in the underlying leases (generally due to right of substitution or purchase
option provisions of the leases), the Company accounts for the leases as financings.

Note 12. Related Party Transactions

On September 15, 2017, the Company entered into a services agreement with Biglari Enterprises LLC and Biglari Capital
(collectively, the “Biglari Entities”). The Biglari Entities are owned by Mr. Biglari. The services agreement replaces the shared
services agreement between the Company and Biglari Capital dated July 1, 2013. The services agreement was executed in
connection with a review of the relationships and transactions between the Company and Biglari Capital. After careful
consideration, including an assessment by a public accounting firm of administrative-related costs incurred by the Company in
connection with its investments, the Company’s Governance, Compensation and Nominating Committee, comprised solely of
independent board members, approved the services agreement. Under the terms of the services agreement, the Company will no
longer provide business and administrative-related services to Biglari Capital. Instead, the Biglari Entities will assume the
responsibility to provide the services and the Company will pay a fixed fee to the Biglari Entities.

The services agreement has a five-year term, effective on October 1, 2017. The fixed fee is $700 per month for the first year with
adjustments in years two through five. The services agreement does not alter the hurdle rate connected with the incentive
reallocation paid to Biglari Capital by the Company.

Investments in The Lion Fund, L.P. and The Lion Fund II, L.P.
As of December 31, 2018, the Company’s investments in The Lion Fund, L.P. and The Lion Fund II, L.P. had a fair value of
$715,102.

YearFinance ObligationsCapital LeasesTotalOperating PropertyNon-Operating Property2019 .................................................................................11,114$ 55$ 11,169$ 17,914$ 483$ 2020 .................................................................................8,040 55 8,095 16,691 554 2021 .................................................................................5,925 55 5,980 16,787 578 2022 .................................................................................2,951 5 2,956 15,603 599 2023 .................................................................................1,587 - 1,587 14,071 539 After 2023 .......................................................................1,673 - 1,673 36,709 1,790 Total minimum future rental payments ...........................31,290 170 31,460 117,775$ 4,543$ Less amount representing interest ...................................18,004 60 18,064 Total principal obligations under leases ..........................13,286 110 13,396 Less current portion ........................................................4,433 30 4,463 Non-current principal obligations under leases ...............8,853 80 8,933 Residual value at end of lease term ..................................50,744 60 50,804 Obligations under leases ..................................................59,597$ 140$ 59,737$ Operating Leases201820172016Minimum rent ....................................................................................................20,158$ 18,157$ 17,906$ Contingent rent ..................................................................................................1,470 1,839 1,841 Rent expense ......................................................................................................21,628$ 19,996$ 19,747$

Notes to Consolidated Financial Statements (continued)

Note 12. Related Party Transactions (continued)

Contributions to and distributions from The Lion Fund, L.P. and The Lion Fund II, L.P. were as follows.

As the general partner of the investment partnerships, Biglari Capital on December 31 of each year will earn an incentive
reallocation fee for the Company’s investments equal to 25% of the net profits above a hurdle rate of 6% over the previous high-
water mark. Our policy is to accrue an estimated incentive fee throughout the year. In 2018 and 2017, no incentive reallocation
was earned. Based on Biglari Holdings’ $280,563 of earnings from the investment partnerships for 2016, the total incentive
reallocation from Biglari Holdings to Biglari Capital was $31,628, including $11,514 associated with gains on the Company’s
common stock.

Incentive Agreement Amendment
During 2013, Biglari Holdings and Mr. Biglari entered into an amendment to the Incentive Agreement to exclude earnings by the
investment partnerships from the calculation of Mr. Biglari’s incentive fee. No incentive fees were earned in 2018 and 2016. In
2017, Mr. Biglari earned an incentive fee of $7,353. Under the Amended and Restated Incentive Agreement Mr. Biglari would
receive a payment of approximately $7,000 if an event occurred entitling him to a severance payment.

License Agreement
On January 11, 2013, the Company entered into a Trademark License Agreement (the “License Agreement”) with Mr. Biglari.
The License Agreement was unanimously approved by the Governance, Nominating and Compensation Committee (comprised of
independent members of the Company’s Board of Directors). In addition, the license under the License Agreement is provided on
a royalty-free basis in the absence of specified extraordinary events described below. Accordingly, the Company and its
subsidiaries have paid no royalties to Mr. Biglari under the License Agreement since its inception.

Under the License Agreement, Mr. Biglari granted to the Company an exclusive license to use the Biglari and Biglari Holdings
names (the “Licensed Marks”) in association with various products and services (collectively the “Products and Services”). Upon
(a) the expiration of twenty years from the date of the License Agreement (subject to extension as provided in the License
Agreement), (b) Mr. Biglari’s death, (c) the termination of Mr. Biglari’s employment by the Company for Cause (as defined in
the License Agreement), or (d) Mr. Biglari’s resignation from his employment with the Company absent an Involuntary
Termination Event (as defined in the License Agreement), the Licensed Marks for the Products and Services will transfer from
Mr. Biglari to the Company, without any compensation, if the Company is continuing to use the Licensed Marks in the ordinary
course of its business. Otherwise, the rights will revert to Mr. Biglari.

If (i) a Change of Control (as defined in the License Agreement) of the Company; (ii) the termination of Mr. Biglari’s employment
by the Company without Cause; or (iii) Mr. Biglari’s resignation from his employment with the Company due to an Involuntary
Termination Event (each, a “Triggering Event”) were to occur, Mr. Biglari would be entitled to receive a 2.5% royalty on
“Revenues” with respect to the “Royalty Period.” The royalty payment to Mr. Biglari would not apply to all revenues received by
Biglari Holdings and its subsidiaries nor would it apply retrospectively (i.e., to revenues received with respect to the period prior
to the Triggering Event). The royalty would apply to revenues recorded by the Company on an accrual basis under GAAP, solely
with respect to the defined period of time after the Triggering Event equal to the Royalty Period, from a covered Product, Service
or business that (1) has used the Biglari Holdings or Biglari name at any time during the term of the License Agreement, whether
prior to or after a Triggering Event, or (2) the Company has specifically identified, prior to a Triggering Event, will use the name
Biglari or Biglari Holdings.

201820172016Contributions of cash ....................................................................................39,040$ 3,707$ 14,150$ Contributions of securities ..............................................................................- - 5,682 Distributions of cash ......................................................................................(68,700) (9,395) (26,265) Distributions of securities ...............................................................................- - (4,463) (29,660)$ (5,688)$ (10,896)$

Notes to Consolidated Financial Statements (continued)

Note 12. Related Party Transactions (continued)

“Revenues” means all revenues received, on an accrual basis under GAAP, by the Company, its subsidiaries and affiliates from
the following: (1) all Products and Services covered by the License Agreement bearing or associated with the names Biglari and
Biglari Holdings at any time (whether prior to or after a Triggering Event). This category would include, without limitation, the
use of Biglari or Biglari Holdings in the public name of a business providing any covered Product or Service; and (2) all covered
Products, Services and businesses that the Company has specifically identified, prior to a Triggering Event, will bear, use or be
associated with the name Biglari or Biglari Holdings.

The Governance, Nominating and Compensation Committee unanimously approved the association of the Biglari name and mark
with all of Steak n Shake’s restaurants (including Company operated and franchise locations), products and brands. On May 14,
2013, the Company, Steak n Shake, LLC and Steak n Shake Enterprises, Inc. entered into a Trademark Sublicense Agreement in
connection therewith. Accordingly, revenues received by the Company, its subsidiaries and affiliates from Steak n Shake’s
restaurants, products and brands would come within the definition of Revenues for purposes of the License Agreement.

The “Royalty Period” is a defined period of time, after the Triggering Event, calculated as follows: (i) if, following three months
after a Triggering Event, the Company or any of its subsidiaries or affiliates continues to use the Biglari or Biglari Holdings name
in connection with any covered Product or Service, or continues to use Biglari as part of its corporate or public company name,
then the Royalty Period will equal (a) the period of time during which the Company or any of its subsidiaries or affiliates continues
any such use, plus (b) a period of time after the Company, its subsidiaries and affiliates have ceased all uses of the names Biglari
and Biglari Holdings equal to the length of the term of the License Agreement prior to the Triggering Event, plus three years. As
an example, if a Triggering Event occurs five years after the date of the License Agreement, and the Company ceases all uses of
the Biglari and Biglari Holdings names two years after the Triggering Event, the Royalty Period will equal a total of ten years (the
sum of two years after the Triggering Event during which the Biglari and Biglari Holdings names are being used, plus a period of
time equal to the five years prior to the Triggering Event, plus three years); or (ii) if the Company, its subsidiaries and affiliates
cease all uses of the Biglari and Biglari Holdings names within three months after a Triggering Event, then the Royalty Period will
equal the length of the term of the License Agreement prior to the Triggering Event, plus three years. As an example, if a Triggering
Event occurs five years after the date of the License Agreement, and the Company ceases all uses of the Biglari and Biglari
Holdings names two months after the Triggering Event, the Royalty Period will equal a total of eight years (the sum of the period
of time equal to the five years prior to the Triggering Event, plus three years). Notwithstanding the above methods of determining
the Royalty Period, the minimum Royalty Period is five years after a Triggering Event.

The Company and its subsidiaries have paid no royalties to Mr. Biglari under the License Agreement since its execution.

The actual amount of royalties paid to Mr. Biglari following the occurrence of a Triggering Event (as defined in the License
Agreement) would depend on the Company’s revenues during the applicable period following the Triggering Event, and, therefore,
depends on material assumptions and estimates regarding future operations and revenues. Assuming for purposes of illustration a
Triggering Event occurred on December 31, 2018, using revenue from 2018 as an estimate of future revenue and calculated
according to terms of the License Agreement, Mr. Biglari would receive approximately $19,000 in royalty payments annually. At
a minimum, the royalties would be earned on revenue generated from January 1, 2019 through December 21, 2025. Royalty
payments beyond the minimum period would be subject to the licensee’s continued use of the licensed marks.

Note 13. Commitments and Contingencies

Notes to Consolidated Financial Statements (continued)

Note 13. Commitments and Contingencies (continued)

The Company believes the claims in each case are without merit and intends to defend these cases vigorously.

Note 14. Fair Value of Financial Assets

The fair values of substantially all of our financial instruments were measured using market or income approaches. Considerable
judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the fair values
presented are not necessarily indicative of the amounts that could be realized in an actual current market exchange. The use of
alternative market assumptions and/or estimation methodologies may have a material effect on the estimated fair value.

The hierarchy for measuring fair value consists of Levels 1 through 3, which are described below.

 Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

 Level 2 – Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for
similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities
exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets or liabilities,
such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and
inputs that are derived principally from or corroborated by observable market data by correlation or other means. Pricing
evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with
similar characteristics, such as credit ratings, estimated durations and yields for other instruments of the issuer or entities
in the same industry sector.

 Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required
to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or
liabilities and we may be unable to corroborate the related observable inputs. Unobservable inputs require management
to make certain projections and assumptions about the information that would be used by market participants in pricing
assets or liabilities.

Notes to Consolidated Financial Statements (continued)

Note 14. Fair Value of Financial Assets (continued)

The following methods and assumptions were used to determine the fair value of each class of the following assets recorded at fair
value in the consolidated balance sheet:

Cash equivalents: Cash equivalents primarily consist of money market funds which are classified within Level 1 of the fair value
hierarchy.

Equity securities: The Company’s investments in equity securities are classified within Level 1 of the fair value hierarchy.

Bonds: The Company’s investments in bonds are classified within Level 1 or Level 2 of the fair value hierarchy depending on the
instrument.

Non-qualified deferred compensation plan investments: The assets of the non-qualified plan are set up in a rabbi trust. They
represent mutual funds and publicly traded securities, each of which are classified within Level 1 of the fair value hierarchy.

Derivative instruments: Options related to equity securities are marked to market each reporting period and are classified within
Level 2 of the fair value hierarchy.

As of December 31, 2018 and 2017 the fair values of financial assets were as follows.

There were no changes in our valuation techniques used to measure fair values on a recurring basis.

Note 15. Accumulated Other Comprehensive Income

Changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, were as follows.

Level 1Level 2Level 3TotalLevel 1Level 2Level 3TotalAssetsCash equivalents .............................21,448$ -$ -$ 21,448$ 5,785$ -$ -$ 5,785$ Equity securities: Consumer goods ..........................1,708 4,100 - 5,808 2,445 - - 2,445 Bonds ..............................................32,404 - - 32,404 - 25,901 - 25,901 Options on equity securities ..........- 2,775 - 2,775 - 2,018 - 2,018 Non-qualified deferredcompensation plan investments ..2,149 - - 2,149 3,459 - - 3,459 Total assets at fair value .................57,709$ 6,875$ -$ 64,584$ 11,689$ 27,919$ -$ 39,608$ 20182017December 31,Foreign Currency Translation AdjustmentsInvestmentGain (Loss)AccumulatedOtherComprehensiveLossForeign Currency Translation AdjustmentsInvestmentGain (Loss)AccumulatedOtherComprehensiveLossBeginning Balance ..........................(1,462)$ 58$ (1,404)$ (3,447)$ (137)$ (3,584)$ Other comprehensive income (loss)before reclassifications ................- - 195 195 Reclassification to (earnings) loss ...(58) (58) Foreign currency translation ..........(1,054) (1,054) 1,985 1,985 Ending Balance ..............................(2,516)$ -$ (2,516)$ (1,462)$ 58$ (1,404)$ 20182017

Notes to Consolidated Financial Statements (continued)

Note 15. Accumulated Other Comprehensive Income (continued)

Reclassifications made from accumulated other comprehensive income to the statement of earnings were $58 of income to earnings
during 2018 and $193 of losses to earnings during 2016; there were no reclassifications from accumulated other comprehensive
income to earnings during 2017.

Note 16. Business Segment Reporting

Our reportable business segments are organized in a manner that reflects how management views those business activities. Our
restaurant operations include Steak n Shake and Western Sizzlin. The Company also reports segment information for First Guard
and Maxim. Other business activities not specifically identified with reportable business segments are presented in “other” within
total operating businesses. We report our earnings from investment partnerships separate from our corporate expenses. We assess
and measure segment operating results based on segment earnings as disclosed below. Segment earnings from operations are
neither necessarily indicative of cash available to fund cash requirements, nor synonymous with cash flow from operations. The
tabular information that follows shows data of our reportable segments reconciled to amounts reflected in the consolidated financial
statements.

Revenue for 2018, 2017 and 2016 were as follows.

Foreign Currency Translation AdjustmentsInvestmentGain (Loss)AccumulatedOtherComprehensiveLossBeginning Balance .....................................................................................................(2,992)$ (687)$ (3,679)$ Other comprehensive income (loss)before reclassifications ...........................................................................................357 357 Reclassification to (earnings) loss ..............................................................................193 193 Foreign currency translation ......................................................................................(455) (455) Ending Balance ..........................................................................................................(3,447)$ (137)$ (3,584)$ 2016201820172016Operating Businesses:Restaurant Operations:Steak n Shake .............................................................................................760,565$ 792,827$ 804,423$ Western .....................................................................................................15,125 14,326 13,491 Total Restaurant Operations ........................................................................775,690 807,153 817,914 First Guard ...................................................................................................27,628 24,943 22,997 Maxim ..........................................................................................................6,576 7,708 9,165 809,894$ 839,804$ 850,076$ Revenue

Notes to Consolidated Financial Statements (continued)

Note 16. Business Segment Reporting (continued)

Earnings (loss) before income taxes for 2018, 2017 and 2016 were as follows.

A disaggregation of our consolidated capital expenditures for 2018, 2017 and 2016 is presented in the tables that follow.

201820172016Operating Businesses:Restaurant Operations:Steak n Shake ................................................................................................(10,657)$ 431$ 34,717$ Western ........................................................................................................2,046 1,860 2,506 Total Restaurant Operations ...........................................................................(8,611) 2,291 37,223 First Guard ......................................................................................................6,215 4,770 5,135 Maxim .............................................................................................................1,068 (439) (10,078) Other ...............................................................................................................635 669 94 Total Operating Businesses ...............................................................................(693) 7,291 32,374 Corporate and investments:Corporate ........................................................................................................(11,286) (16,106) (10,241) Investment partnership gains ..........................................................................40,411 6,965 135,580 Total corporate ...................................................................................................29,125 (9,141) 125,339 Interest expense on notespayable and other borrowings .........................................................................(11,677) (11,040) (11,450) 16,755$ (12,890)$ 146,263$ Earnings (Loss) Before Income Taxes201820172016Operating Businesses:Restaurant Operations:Steak n Shake ................................................................................................14,982$ 7,565$ 8,257$ Western ........................................................................................................61 410 306 Total Restaurant Operations ...........................................................................15,043 7,975 8,563 First Guard ......................................................................................................236 43 7 Maxim .............................................................................................................- - 42 Other ...............................................................................................................14 16 51 Total Operating Businesses ...............................................................................15,293 8,034 8,663 Corporate ........................................................................................................- - - Consolidated results ...........................................................................................15,293$ 8,034$ 8,663$ Capital Expenditures

Notes to Consolidated Financial Statements (continued)

Note 16. Business Segment Reporting (continued)

A disaggregation of our consolidated depreciation and amortization captions for 2018, 2017 and 2016 is presented in the tables
that follow.

A disaggregation of our consolidated asset captions is presented in the table that follows.

201820172016Operating Businesses:Restaurant Operations:Steak n Shake ................................................................................................18,180$ 19,987$ 20,968$ Western ........................................................................................................651 636 605 Total Restaurant Operations ...........................................................................18,831 20,623 21,573 First Guard ......................................................................................................76 56 64 Maxim .............................................................................................................27 50 409 Other ...............................................................................................................287 287 431 Total Operating Businesses ...............................................................................19,221 21,016 22,477 Corporate ........................................................................................................97 432 448 Consolidated results ...........................................................................................19,318$ 21,448$ 22,925$ Depreciation and Amortization20182017Reportable segments:Restaurant Operations:Steak n Shake ................................................................................................................................330,100$ 373,654$ Western .........................................................................................................................................16,444 17,027 Total Restaurant Operations ...........................................................................................................346,544 390,681 First Guard ......................................................................................................................................51,565 46,693 Maxim ..............................................................................................................................................18,143 19,155 Other ................................................................................................................................................19,774 20,514 Corporate .........................................................................................................................................35,987 20,520 Investment partnerships ..................................................................................................................557,480 566,021 Total assets ....................................................................................................................................1,029,493$ 1,063,584$ Identifiable AssetsDecember 31,

Notes to Consolidated Financial Statements (continued)

Note 17. Quarterly Financial Data (Unaudited)

Note 18. Supplemental Disclosures of Cash Flow Information

Capital expenditures in accounts payable at December 31, 2018, 2017 and 2016 were $1,776, $1,036 and $480, respectively.

In 2018, we had new capital lease obligations of $1,000 and lease retirements of $11,557. In 2017, we had new capital lease
obligations of $1,952 and lease retirements of $5,030. During 2016, we had new capital lease obligations of $258 and lease
retirements of $1,006.

In 2016, the Company made a non-cash contribution of securities of $5,682 to the investment partnerships and received a non-cash
distribution of securities of $4,463 from the investment partnerships.

1st Quarter2nd Quarter3rd Quarter4th Quarter202,225$ 208,739$ 203,582$ 195,348$ 36,430 42,727 36,153 33,145 203,391 203,778 204,518 201,979 (2,611) (8,429) (24,902) 52,697 (1,814) (7,539) (13,703) 42,448 (5.15)$ (21.73)$ (39.50)$ 122.53$ 203,393$ 212,954$ 214,234$ 209,223$ 39,582 39,992 36,664 36,285 198,918 210,050 215,327 215,242 (25,597) 35,043 (49,926) 27,590 (15,821) 21,126 (24,700) 69,466 (42.72)$ 57.27$ (66.96)$ 190.05$ Net earnings (loss) per equivalent Class A share .....................We define gross profit as net revenue less restaurant cost of sales, media cost of sales, and insurance losses and underwriting expenses, which excludes depreciation and amortization.Net earnings (loss) .................................................................Net earnings (loss) per equivalent Class A share ..............For the year ended December 31, 2017Total revenues ..........................................................................Gross profit ..............................................................................Costs and expenses ...................................................................Earnings (loss) before income taxes ..........................................Net earnings (loss) ....................................................................For the year ended December 31, 2018Total revenues ........................................................................Gross profit .............................................................................Costs and expenses ................................................................Earnings (loss) before income taxes ....................................

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.

Controls and Procedures

Based on an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), our
Chief Executive Officer and Controller have concluded that our disclosure controls and procedures were effective as of December
31, 2018.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31,
2018 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management of Biglari Holdings Inc. is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Under the supervision of our principal
executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2018 as required by the Securities Exchange Act of 1934 Rule 13a-15(c). In making
this assessment, we used the criteria set forth in the framework in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal
Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective
as of December 31, 2018.

The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Deloitte & Touche
LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Biglari Holdings Inc.
February 23, 2019

Item 9B.

Other Information

None.

Part III

Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services

The information required by Part III Items 10, 11, 12, 13 and 14 will be contained in the Company’s definitive proxy statement for
its 2019 Annual Meeting of Shareholders, to be filed on or before April 25, 2019, and such information is incorporated herein by
reference.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 23, 2019.

SIGNATURES

BIGLARI HOLDINGS INC.

By:

/s/ BRUCE LEWIS

Bruce Lewis
Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated, on February 23, 2019.

Signature

/s/ SARDAR BIGLARI
Sardar Biglari

/s/ BRUCE LEWIS
Bruce Lewis

/s/ PHILIP COOLEY
Philip Cooley

/s/ RUTH J. PERSON
Ruth J. Person

/s/ KENNETH R. COOPER
Kenneth R. Cooper

/s/ JAMES P. MASTRIAN
James P. Mastrian

Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Title

Controller (Principal Financial and Accounting Officer)

Director